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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 000-50552





ASSET ACCEPTANCE CAPITAL CORP.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 80-0076779                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

28405 Van Dyke Avenue

Warren, Michigan 48093

(Address of principal executive offices)

Registrants telephone number, including area code:

(586) 939-9600





Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

Yes  x    No   ̈

Indicate by check mark whether the Registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act.



|                                                                       |  |                             
|---------------------------------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈                                             |  | Accelerated filer  x        
|Non-accelerated filer   ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company   ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

As of July 25, 2008, 30,542,927 shares of the Registrants common stock were outstanding.









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ASSET ACCEPTANCE CAPITAL CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS



|           |  |                                                                                                                                                                                                                                                                  |  |     
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                                                                                                                                                                  |  | Page
|           |  | PART I  Financial Information                                                                                                                                                                                                                                   |  |     
|Item 1.    |  | Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                    |  | 3   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                            |  | 18  
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                                                                                       |  | 35  
|Item 4.    |  | Controls and Procedures                                                                                                                                                                                                                                          |  | 36  
|           |  | PART II  Other Information                                                                                                                                                                                                                                      |  |     
|Item 1.    |  | Legal Proceedings                                                                                                                                                                                                                                                |  | 36  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                              |  | 36  
|Item 6.    |  | Exhibits                                                                                                                                                                                                                                                         |  | 37  
|Signatures |  |                                                                                                                                                                                                                                                                  |  | 38  
|Exhibits:  |  | 10.1    First Amendment to the Lease Agreement dated as of April 11, 2008, between Asset Acceptance, LLC and Northpoint
Atrium Office Building, Ltd. (Incorporated by reference to Exhibit 10.1 included in the Current Report on Form 8-K filed on May 6, 2008) |  |     
|           |  | 31.1    Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                  |  |     
|           |  | 31.2    Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                  |  |     
|           |  | 32.1    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                        |  |     

Quarterly Report on Form 10-Q

This Form 10-Q and all other Company filings with the Securities and Exchange Commission are also accessible at no charge on the Companys website at www.assetacceptance.com as soon as reasonably
practicable after filing with the Commission.



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PART I - FINANCIAL INFORMATION



|Item 1. | Consolidated Financial Statements
|------- | ---------------------------------

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Financial Position



|                                                                                                                                              |  |               |             |   |                   |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                              |  | June 30, 2008 |             |   | December 31, 2007 |  
|                                                                                                                                              |  | (Unaudited)   |             |   |                   |  
|ASSETS                                                                                                                                        |  |               |             |  
|Cash                                                                                                                                          |  | $             | 9,159,212   |   |                   | $ | 10,474,479  |  
|Purchased receivables, net                                                                                                                    |  |               | 355,647,646 |   |                   |   | 346,198,900 |  
|Income taxes receivable                                                                                                                       |  |               | 3,224,535   |   |                   |   | 3,424,788   |  
|Property and equipment, net                                                                                                                   |  |               | 13,926,234  |   |                   |   | 11,006,658  |  
|Goodwill and other intangible assets                                                                                                          |  |               | 16,880,471  |   |                   |   | 17,464,688  |  
|Other assets                                                                                                                                  |  |               | 6,290,707   |   |                   |   | 6,083,211   |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|Total assets                                                                                                                                  |  | $             | 405,128,805 |   |                   | $ | 394,652,724 |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|                                                                                                                                              |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                          |  |               |             |   |                   |   |             |  
|Liabilities:                                                                                                                                  |  |               |             |   |                   |   |             |  
|Accounts payable                                                                                                                              |  | $             | 4,108,450   |   |                   | $ | 3,377,068   |  
|Accrued liabilities                                                                                                                           |  |               | 18,950,606  |   |                   |   | 17,423,378  |  
|Notes payable                                                                                                                                 |  |               | 189,500,000 |   |                   |   | 191,250,000 |  
|Deferred tax liability, net                                                                                                                   |  |               | 60,563,459  |   |                   |   | 60,164,784  |  
|Capital lease obligations                                                                                                                     |  |               | 4,475       |   |                   |   | 18,242      |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|                                                                                                                                              |  |              
|Total liabilities                                                                                                                             |  | $             | 273,126,990 |   |                   | $ | 272,233,472 |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|                                                                                                                                              |  |              
|Stockholders equity:                                                                                                                         |  |               |             |   |                   |   |             |  
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding                                              |  |               |            |   |                   |   |            |  
|Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares  33,119,597 at June 30, 2008 and December 31,
2007, respectively |  |               | 331,196     |   |                   |   | 331,196     |  
|Additional paid in capital                                                                                                                    |  |               | 146,348,892 |   |                   |   | 145,610,742 |  
|Retained earnings                                                                                                                             |  |               | 28,367,100  |   |                   |   | 19,465,118  |  
|Accumulated other comprehensive loss, net of tax                                                                                              |  |               | (2,069,444  | ) |                   |   | (2,012,127  | )
|Common stock in treasury; at cost, 2,576,670 and 2,551,556 shares at June 30, 2008 and December 31, 2007,
respectively                        |  |               | (40,975,929 | ) |                   |   | (40,975,677 | )
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                    |  |               | 132,001,815 |   |                   |   | 122,419,252 |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                    |  | $             | 405,128,805 |   |                   | $ | 394,652,724 |  
|                                                                                                                                              |  |               |             |   |                   |   |             |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Income

(Unaudited)



|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|-------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                       |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|                                       |  | 2008                        |            |   | 2007                      |   |            | 2008 |  |   | 2007        |  
|Revenues                               |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Purchased receivable revenues, net     |  | $                           | 56,208,679 |   |                           | $ | 65,514,898 |      |  | $ | 119,931,367 |   |  | $ | 132,296,932 |  
|Gain on sale of purchased receivables  |  |                             | 5,935      |   |                           |   |           |      |  |   | 165,040     |   |  |   |            |  
|Other revenues, net                    |  |                             | 264,885    |   |                           |   | 350,976    |      |  |   | 737,822     |   |  |   | 874,969     |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Total revenues                         |  |                             | 56,479,499 |   |                           |   | 65,865,874 |      |  |   | 120,834,229 |   |  |   | 133,171,901 |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Expenses                               |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Salaries and benefits                  |  |                             | 20,735,930 |   |                           |   | 20,952,579 |      |  |   | 42,666,895  |   |  |   | 43,401,034  |  
|Collections expense                    |  |                             | 23,133,891 |   |                           |   | 23,709,050 |      |  |   | 45,230,572  |   |  |   | 46,778,990  |  
|Occupancy                              |  |                             | 1,928,829  |   |                           |   | 2,307,643  |      |  |   | 3,856,317   |   |  |   | 4,647,028   |  
|Administrative                         |  |                             | 2,950,819  |   |                           |   | 3,281,103  |      |  |   | 5,618,971   |   |  |   | 5,494,459   |  
|Restructuring charges                  |  |                             |           |   |                           |   | 328,925    |      |  |   |            |   |  |   | 477,036     |  
|Depreciation and amortization          |  |                             | 921,970    |   |                           |   | 1,079,374  |      |  |   | 1,949,774   |   |  |   | 2,168,266   |  
|Impairment of intangible assets        |  |                             |           |   |                           |   |           |      |  |   | 445,651     |   |  |   |            |  
|Loss on disposal of equipment          |  |                             | 3,900      |   |                           |   | 6,714      |      |  |   | 9,483       |   |  |   | 1,299       |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Total operating expenses               |  |                             | 49,675,339 |   |                           |   | 51,665,388 |      |  |   | 99,777,663  |   |  |   | 102,968,112 |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Income from operations                 |  |                             | 6,804,160  |   |                           |   | 14,200,486 |      |  |   | 21,056,566  |   |  |   | 30,203,789  |  
|Other income (expense)                 |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Interest income                        |  |                             | 6,778      |   |                           |   | 206,397    |      |  |   | 30,029      |   |  |   | 222,124     |  
|Interest expense                       |  |                             | (3,250,063 | ) |                           |   | (1,138,562 | )    |  |   | (6,594,660  | ) |  |   | (1,402,380  | )
|Other                                  |  |                             | (1,650     | ) |                           |   | 10,256     |      |  |   | 16,333      |   |  |   | 22,465      |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Income before income taxes             |  |                             | 3,559,225  |   |                           |   | 13,278,577 |      |  |   | 14,508,268  |   |  |   | 29,045,998  |  
|Income taxes                           |  |                             | 1,435,067  |   |                           |   | 4,999,412  |      |  |   | 5,606,286   |   |  |   | 10,915,580  |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Net income                             |  | $                           | 2,124,158  |   |                           | $ | 8,279,165  |      |  | $ | 8,901,982   |   |  | $ | 18,130,418  |  
|                                       |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Weighted-average number of shares:     |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Basic                                  |  |                             | 30,561,421 |   |                           |   | 34,279,507 |      |  |   | 30,557,220  |   |  |   | 34,498,008  |  
|Diluted                                |  |                             | 30,606,807 |   |                           |   | 34,293,511 |      |  |   | 30,586,249  |   |  |   | 34,508,368  |  
|Earnings per common share outstanding: |  |                             |            |   |                           |   |            |      |  |   |             |   |  |   |             |  
|Basic                                  |  | $                           | 0.07       |   |                           | $ | 0.24       |      |  | $ | 0.29        |   |  | $ | 0.53        |  
|Diluted                                |  | $                           | 0.07       |   |                           | $ | 0.24       |      |  | $ | 0.29        |   |  | $ | 0.53        |  
|                                       |  |                             |            |  
|Dividends declared per common share    |  | $                           |           |   |                           | $ | 2.45       |      |  | $ |            |   |  | $ | 2.45        |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |  |                           |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | Six months ended June 30, |            
|                                                                                  |  | 2008                      |             |   | 2007 |  
|Cash flows from operating activities                                              |  |                           |             |   |      |   |             |  
|Net income                                                                        |  | $                         | 8,901,982   |   |      | $ | 18,130,418  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |             |   |      |   |             |  
|Depreciation and amortization                                                     |  |                           | 1,949,774   |   |      |   | 2,168,266   |  
|Deferred income taxes                                                             |  |                           | 428,777     |   |      |   | 1,895,917   |  
|Share-based compensation expense                                                  |  |                           | 737,898     |   |      |   | 1,076,038   |  
|Net impairment of purchased receivables                                           |  |                           | 5,353,450   |   |      |   | 9,616,200   |  
|Non-cash revenue                                                                  |  |                           | (316,269    | ) |      |   | (684,940    | )
|Loss on disposal of equipment                                                     |  |                           | 9,483       |   |      |   | 1,299       |  
|Gain on sale of purchased receivables                                             |  |                           | (165,040    | ) |      |   |            |  
|Impairment of intangible assets                                                   |  |                           | 445,651     |   |      |   |            |  
|Changes in assets and liabilities:                                                |  |                           |             |   |      |   |             |  
|Increase in accounts payable and accrued liabilities                              |  |                           | 2,171,191   |   |      |   | 3,659,597   |  
|Increase (decrease) in other assets                                               |  |                           | 453,080     |   |      |   | (3,334,412  | )
|Decrease in income taxes receivable                                               |  |                           | 200,253     |   |      |   | 212,963     |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                           | 20,170,230  |   |      |   | 32,741,346  |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Cash flows from investing activities                                              |  |                           |             |   |      |   |             |  
|Investment in purchased receivables, net of buy backs                             |  |                           | (84,976,768 | ) |      |   | (73,511,945 | )
|Principal collected on purchased receivables                                      |  |                           | 70,488,476  |   |      |   | 50,057,179  |  
|Proceeds from the sale of purchased receivables                                   |  |                           | 167,405     |   |      |   |            |  
|Purchase of property and equipment                                                |  |                           | (4,742,783  | ) |      |   | (770,485    | )
|Proceeds from the sale of property and equipment                                  |  |                           | 2,515       |   |      |   | 4,807       |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |                           | (19,061,155 | ) |      |   | (24,220,444 | )
|                                                                                  |  |                           |             |   |      |   |             |  
|Cash flows from financing activities                                              |  |                           |             |   |      |   |             |  
|Borrowings under notes payable                                                    |  |                           | 57,000,000  |   |      |   | 199,000,000 |  
|Repayment of notes payable                                                        |  |                           | (58,750,000 | ) |      |   | (54,000,000 | )
|Payment of credit facility charges                                                |  |                           | (660,575    | ) |      |   |            |  
|Repayment of capital lease obligations                                            |  |                           | (13,767     | ) |      |   | (36,896     | )
|Repurchase of common stock                                                        |  |                           |            |   |      |   | (78,743,296 | )
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash (used in) provided by financing activities                               |  |                           | (2,424,342  | ) |      |   | 66,219,808  |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Net (decrease) increase in cash                                                   |  |                           | (1,315,267  | ) |      |   | 74,740,710  |  
|Cash at beginning of period                                                       |  |                           | 10,474,479  |   |      |   | 11,307,451  |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Cash at end of period                                                             |  | $                         | 9,159,212   |   |      | $ | 86,048,161  |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Supplemental disclosure of cash flow information                                  |  |                           |             |   |      |   |             |  
|Cash paid for interest                                                            |  | $                         | 6,502,385   |   |      | $ | 484,377     |  
|Cash paid for income taxes                                                        |  |                           | 4,993,390   |   |      |   | 8,826,290   |  
|Non-cash investing and financing activities:                                      |  |                           |             |   |      |   |             |  
|Accrual for dividends payable                                                     |  |                           |            |   |      |   | 74,845,716  |  
|Accrual for common stock repurchases from former employees                        |  |                           |            |   |      |   | 1,947,270   |  
|Accrual for tender offer transaction costs                                        |  |                           |            |   |      |   | 941,914     |  
|Change in fair value of swap liability                                            |  |                           | (87,419     | ) |      |   |            |  
|Change in unrealized loss on cash flow hedge                                      |  |                           | (57,317     | ) |      |   |            |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

Asset Acceptance Capital Corp. and its subsidiaries (collectively
referred to as the Company) are engaged in the purchase and collection of defaulted and charged-off accounts receivable portfolios. These receivables are acquired from consumer credit originators, primarily credit card issuers, consumer
finance companies, healthcare providers, retail merchants, telecommunications and other utility providers as well as from resellers and other holders of consumer debt. The Company periodically sells receivables from these portfolios to unaffiliated
companies.

In addition, the Company finances the sales of consumer product retailers.

The accompanying unaudited financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the
Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, income and cash flows in conformity with U.S. generally accepted accounting principles. In the
opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the Companys financial position as of June 30, 2008 and its income for the three and six
months ended June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007, and all adjustments were of a normal recurring nature. The income of the Company for the three and six months ended June 30, 2008 and
2007 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2007.

Reporting Entity

The consolidated financial statements include the accounts of Asset Acceptance Capital Corp. consisting of direct and indirect subsidiaries AAC Investors,
Inc., RBR Holding Corp., Asset Acceptance Holdings, LLC, Asset Acceptance, LLC, Consumer Credit, LLC and Premium Asset Recovery Corporation. Rx Acquisitions, LLC was merged into an affiliate company during the three months ended June 30, 2008.
All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently has two operating segments, one for purchased receivables and one for finance contract receivables. The finance contract receivables
operating segment is not material and therefore is not disclosed separately from the purchased receivables segment.

Purchased
Receivables Portfolios and Revenue Recognition

Purchased receivables are receivables that have been charged-off as uncollectible by
the originating organization and typically have been subject to previous collection efforts. The Company acquires the rights to the unrecovered balances owed by individual debtors through such purchases. The receivable portfolios are purchased at a
substantial discount (generally more than 90%) from their face values and are initially recorded at the Companys acquisition cost, which equals fair value at the acquisition date. Financing for the purchases is primarily provided by the
Companys cash generated from operations and the Companys revolving credit facility.

The Company accounts for its investment in
purchased receivables using the guidance provided by the Accounting Standards Executive Committee Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). The provisions
of SOP 03-3 were adopted by the Company effective January 2005 and apply to purchased receivables acquired after December 31, 2004. The provisions of SOP 03-3 that relate to decreases in expected cash flows amend previously followed guidance,
the Accounting Standards Executive Committee Practice Bulletin 6, Amortization of Discounts on Certain Acquired Loans, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. The
Company purchases pools of homogenous accounts receivable. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk



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characteristics. Risk characteristics of purchased receivables are generally considered to be similar since purchased receivables are usually in the late
stages of the post charged-off collection cycle. The Company therefore aggregates most pools purchased within each quarter. Pools purchased before 2005 may not be aggregated with other pool purchases. Each static pool, either aggregated or
non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Collections on each static pool are allocated to revenue and principal reduction based on the estimated internal rate of return (IRR). The
IRR is the rate of return that each static pool requires to amortize the cost or carrying value of the pool to zero over its estimated life. Each pools IRR is determined by estimating future cash flows, which are based on historical collection
data for pools with similar characteristics. The actual life of each pool may vary, but pools generally amortize between 36 and 84 months depending on the expected collection period. Monthly cash flows greater than revenue recognized will reduce the
carrying value of each static pool and monthly cash flows lower than revenue recognized will increase the carrying value of the static pool. Each pool is reviewed at least quarterly and compared to historical trends to determine whether it is
performing as expected. This comparison is used to determine future estimated cash flows. If the revised cash flow estimates are greater than the original estimates, the IRR is adjusted prospectively to reflect the revised estimate of cash flows
over the remaining life of the static pool. If the revised cash flow estimates are less than the original estimates, the IRR remains unchanged and an impairment is recognized. If the cash flow estimates increase subsequent to recording an
impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method
prescribed by SOP 03-3 is used when collections on a particular portfolio cannot be reasonably predicted. When appropriate, the cost recovery method may be used for pools that previously had a yield assigned to them. Under the cost recovery method,
no revenue is recognized until the Company has fully collected the cost of the portfolio. As of June 30, 2008, the Company had 75 unamortized pools on the cost recovery method, including all healthcare pools, with an aggregate carrying value of
$17,845,691 or about 5.0% of the total carrying value of all purchased receivables. The Company had 51 unamortized pools on the cost recovery method with an aggregate carrying value of $26,939,749, or about 7.8% of the total carrying value of all
purchased receivables as of December 31, 2007.

The agreements to purchase receivables typically include general representations and
warranties from the sellers covering account holder death, bankruptcy, fraud and settled or paid accounts prior to sale. These representations and warranties permit the return of certain ineligible accounts from the Company back to the seller. The
general time frame to return accounts is within 90 to 240 days from the date of the purchase agreement. Proceeds from returns, also referred to as buybacks, are applied against the carrying value of the static pool.

Periodically the Company will sell, on a non-recourse basis, all or a portion of a pool to third parties. The Company does not have any significant
continuing involvement with the sold pools subsequent to sale. Proceeds of these sales are compared to the carrying value of the accounts and a gain or loss is recognized on the difference between proceeds received and carrying value, in accordance
with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities 
a replacement of SFAS 125, as amended. The agreements to sell receivables typically include general representations and warranties. Any accounts returned to the Company under these representations and warranties, and during the negotiated time
frame, are netted against any gains on sale of purchased receivables or if they exceed the total reported gains for the period as a loss on sale of purchased receivables, which would be accrued for if material to the
consolidated financial statements.

Changes in purchased receivable portfolios for the three and six months ended June 30, 2008 and
2007 were as follows:



|                                                      |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  
|----------------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | - | ----------- | ---- |  | - | ------------ | - |  | - | ------------ | -
|                                                      |  | Three months ended June 30, |             |   | Six months ended June 30, |  
|                                                      |  | 2008                        |             |   | 2007                      |   |             | 2008 |  |   | 2007         |  
|Beginning balance                                     |  | $                           | 330,127,109 |   |                           | $ | 307,983,677 |      |  | $ | 346,198,900  |   |  | $ | 300,840,508  |  
|Investment in purchased receivables, net of buybacks  |  |                             | 64,504,740  |   |                           |   | 37,297,460  |      |  |   | 84,976,768   |   |  |   | 73,511,945   |  
|Cost of sale of purchased receivables, net of returns |  |                             | (139        | ) |                           |   |            |      |  |   | (2,365       | ) |  |   |             |  
|Cash collections                                      |  |                             | (95,192,743 | ) |                           |   | (95,432,021 | )    |  |   | (195,457,024 | ) |  |   | (191,285,371 | )
|Purchased receivable revenues                         |  |                             | 56,208,679  |   |                           |   | 65,514,898  |      |  |   | 119,931,367  |   |  |   | 132,296,932  |  
|                                                      |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  
|Ending balance                                        |  | $                           | 355,647,646 |   |                           | $ | 315,364,014 |      |  | $ | 355,647,646  |   |  | $ | 315,364,014  |  
|                                                      |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  



7



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##### Table of Contents

Accretable yield represents the amount of revenue the Company can expect over the remaining life of the
existing portfolios. Nonaccretable yield represents the difference between the remaining expected cash flows and the total contractual obligation outstanding (face value) of the purchased receivables. Changes in accretable yield for the three and
six months ended June 30, 2008 and 2007 were as follows:



|                                             |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  
|-------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | - | ----------- | ---- |  | - | ------------ | - |  | - | ------------ | -
|                                             |  | Three months ended June 30, |             |   | Six months ended June 30, |  
|                                             |  | 2008                        |             |   | 2007                      |   |             | 2008 |  |   | 2007         |  
|Beginning balance (1)                        |  | $                           | 500,290,821 |   |                           | $ | 409,098,137 |      |  | $ | 559,605,071  |   |  | $ | 417,690,314  |  
|Revenue recognized on purchased receivables  |  |                             | (56,208,679 | ) |                           |   | (65,514,898 | )    |  |   | (119,931,367 | ) |  |   | (132,296,932 | )
|Additions due to purchases during the period |  |                             | 95,018,199  |   |                           |   | 43,821,969  |      |  |   | 114,901,367  |   |  |   | 82,193,388   |  
|Reclassifications from nonaccretable yield   |  |                             | 23,721,117  |   |                           |   | 9,373,440   |      |  |   | 8,246,387    |   |  |   | 29,191,878   |  
|                                             |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  
|Ending balance (2)                           |  | $                           | 562,821,458 |   |                           | $ | 396,778,648 |      |  | $ | 562,821,458  |   |  | $ | 396,778,648  |  
|                                             |  |                             |             |   |                           |   |             |      |  |   |              |   |  |   |              |  



|(1) | The balances are based on the estimated remaining collections, which refers to the sum of all future projected cash collections on our owned portfolios. The January 1, 2008
beginning balance reflects the extension of certain portfolios lives from 60 to 84 months during 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Accretable yields are a function of estimated remaining cash flows and are based on historical cash collections. Please refer to Forward-Looking Statements on page 19 and Critical
Accounting Policies on page 34 for further information regarding these estimates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash collections for the three months and
six months ended June 30, 2008 and 2007 include collections from fully amortized pools of which 100% of the collections were reported as revenue. Cash collections from fully amortized pools were as follows:



|                                                  |  |                             |            |                           |   |            |  |      |            |  |   |           
|------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                  |  | Three months ended June 30, |            | Six months ended June 30,
|                                                  |  | 2008                        |            | 2007                      |   | 2008       |  | 2007
|Cash collections from fully amortized pools:      |  |                             |            |                           |   |            |  |      |            |  |   |           
|Amortizing before the end of their expected life  |  | $                           | 7,726,429  |                           | $ | 7,319,465  |  | $    | 16,190,997 |  | $ | 11,618,631
|Amortizing after their expected life              |  |                             | 11,169,647 |                           |   | 13,080,727 |  |      | 23,774,901 |  |   | 25,752,680
|Accounted under the cost recovery method          |  |                             | 1,403,905  |                           |   | 1,445,781  |  |      | 2,580,433  |  |   | 2,931,134 
|                                                  |  |                             |            |                           |   |            |  |      |            |  |   |           
|Total cash collections from fully amortized pools |  | $                           | 20,299,981 |                           | $ | 21,845,973 |  | $    | 42,546,331 |  | $ | 40,302,445
|                                                  |  |                             |            |                           |   |            |  |      |            |  |   |           

Changes in purchased receivables portfolios under the cost recovery method for the three months
and six months ended June 30, 2008 and 2007 were as follows:



|                                                                                        |  |                             |            |   |                           |   |            |          |  |   |             |   |  |   |            |  
|--------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | -------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                        |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|                                                                                        |  | 2008 (1)                    |            |   | 2007                      |   |            | 2008 (1) |  |   | 2007        |  
|Portfolios under the cost recovery method:                                              |  |                             |            |   |                           |   |            |          |  |   |             |   |  |   |            |  
|Beginning balance                                                                       |  | $                           | 21,080,151 |   |                           | $ | 7,759,358  |          |  | $ | 26,991,102  |   |  | $ | 7,246,315  |  
|Addition of portfolios                                                                  |  |                             | 3,031,794  |   |                           |   | 1,642,153  |          |  |   | 5,100,980   |   |  |   | 3,615,481  |  
|Buybacks, impairments and resales adjustments                                           |  |                             | (341,486   | ) |                           |   | (10,622    | )        |  |   | (1,059,558  | ) |  |   | (802,722   | )
|Cash collections on all portfolios under the cost recovery method until fully amortized |  |                             | (5,924,768 | ) |                           |   | (1,822,314 | )        |  |   | (13,186,833 | ) |  |   | (2,490,499 | )
|                                                                                        |  |                             |            |   |                           |   |            |          |  |   |             |   |  |   |            |  
|Ending balance                                                                          |  | $                           | 17,845,691 |   |                           | $ | 7,568,575  |          |  | $ | 17,845,691  |   |  | $ | 7,568,575  |  
|                                                                                        |  |                             |            |   |                           |   |            |          |  |   |             |   |  |   |            |  



|(1) | The 2008 beginning and ending balances include the first quarter of 2005 aggregate and all healthcare portfolios. The carrying values of the first quarter of 2005 aggregate and all
healthcare portfolios were $6,854,002 and $8,042,869, respectively, of the total carrying value of purchased receivables as of June 30, 2008. The carrying values of the first quarter of 2005 aggregate and all healthcare portfolios were
$11,969,159 and $8,642,919, respectively, of the total carrying value of purchased receivables as of December 31, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the three and six months ended June 30, 2008, the Company recorded net impairments of $4,969,167 and $5,353,450, respectively, related to its purchased receivables. The Company recorded net impairments of $5,143,100 and
$9,616,200 during the three and six months ended June 30, 2007, respectively. The net impairments reduced revenue and the carrying value of the purchased receivable portfolios. Changes in the purchased receivables valuation allowance for the
three and six months ended June 30, 2008 and 2007 were as follows:



8



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##### Table of Contents

|                        |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|----------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                        |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|                        |  | 2008                        |            |   | 2007                      |   |            | 2008 |  |   | 2007       |  
|Beginning balance       |  | $                           | 61,239,905 |   |                           | $ | 43,825,155 |      |  | $ | 62,091,755 |   |  | $ | 39,714,055 |  
|Impairments             |  |                             | 5,810,417  |   |                           |   | 5,320,000  |      |  |   | 7,605,950  |   |  |   | 10,034,000 |  
|Reversal of impairments |  |                             | (841,250   | ) |                           |   | (176,900   | )    |  |   | (2,252,500 | ) |  |   | (417,800   | )
|Deductions (1)          |  |                             | (23,417    | ) |                           |   | (552,600   | )    |  |   | (1,259,550 | ) |  |   | (914,600   | )
|                        |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Ending balance          |  | $                           | 66,185,655 |   |                           | $ | 48,415,655 |      |  | $ | 66,185,655 |   |  | $ | 48,415,655 |  
|                        |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  



|(1) | Deductions represent impairments on fully amortized purchased receivable portfolios that were written-off and cannot be reversed.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

Seasonality

Collections
within portfolios tend to be seasonally higher in the first and second quarters of the year due to consumers receipt of tax refunds and other factors. Conversely, collections within portfolios tend to be lower in the third and fourth quarters
of the year due to consumers spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions
prescribed by SOP 03-3. In addition, the Companys operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and loading these
receivables into the Companys systems. Consequently, income and margins may fluctuate from quarter to quarter.

Collections
from Third Parties

The Company regularly utilizes unaffiliated third parties, primarily attorneys and other contingent collection
agencies, to collect certain account balances on behalf of the Company in exchange for a percentage of balances collected by the third party. The Company records the gross proceeds received by the unaffiliated third parties as cash collections. The
Company includes the reimbursement of certain legal and other costs as cash collections. The Company records the percentage of the gross cash collections paid to the third parties as a component of collections expense. The percent of gross cash
collections from such third party relationships were 29.0% and 24.9% for the three months ended June 30, 2008 and 2007, respectively, and 28.9% and 24.4% for the six months ended June 30, 2008 and 2007, respectively.

Accrued Liabilities

As of
June 30, 2008 and December 31, 2007, the totals of accrued liabilities were $18,950,606 and $17,423,378, respectively. The details of the balances are identified in the following table.



|                                            |  |               |            |                   |   |           
|------------------------------------------- |  | ------------- | ---------- | ----------------- | - | ----------
|                                            |  | June 30, 2008 |            | December 31, 2007
|Accrued payroll, benefits and bonuses       |  | $             | 7,891,061  |                   | $ | 7,271,593 
|Deferred rent                               |  |               | 3,574,896  |                   |   | 3,754,365 
|Fair value of derivative instruments        |  |               | 3,213,422  |                   |   | 3,126,003 
|Accrued general and administrative expenses |  |               | 3,103,130  |                   |   | 2,003,463 
|Accrued interest expense                    |  |               | 825,483    |                   |   | 974,900   
|Deferred credits (cash advance)             |  |               | 147,289    |                   |   |          
|Other accrued expenses                      |  |               | 195,325    |                   |   | 293,054   
|                                            |  |               |            |                   |   |           
|Total accrued liabilities                   |  | $             | 18,950,606 |                   | $ | 17,423,378
|                                            |  |               |            |                   |   |           

Concentration of Risk

For the three and six months ended June 30, 2008, the Company invested 69.4% and 56.6%, respectively, in purchased receivables from its top three
sellers. For the three and six months ended June 30, 2007, the Company invested 68.2% and 56.3%, respectively, in purchased receivables from its top three sellers. One seller is included in the top three in both of the three-month and six-month
periods.



9



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##### Table of Contents

Interest Expense

Interest expense included interest on the Companys credit facilities, unused facility fees and amortization of capitalized bank fees. Interest
expense of $20,501 and $40,270 related to software development for internal use was capitalized in the three and six months ended June 2008, respectively. There was no interest expense related to software development for internal use capitalized in
the three and six months ended June 2007.

Earnings Per Share

Earnings per share reflect net income divided by the weighted-average number of shares outstanding. Diluted weighted-average shares outstanding at
June 30, 2008 and 2007 included 29,029 and 10,360 dilutive shares, respectively, related to outstanding options, deferred stock units, restricted shares and restricted share units (the Share-Based Awards). There were 677,991 and
354,499 outstanding Share-Based Awards that were not included within the diluted weighted-average shares as their fair value exceeded the market price of the Companys stock at June 30, 2008 and 2007, respectively. As such, they were
anti-dilutive.

Goodwill and Other Intangible Assets

Intangible assets with finite lives arising from business combinations are amortized over their estimated useful lives, ranging from five to seven years,
using the straight-line and double-declining methods. As prescribed by SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), goodwill and trademark and trade names with indefinite lives are not amortized. Goodwill and
other intangible assets are reviewed annually to assess recoverability or more frequently if impairment indicators are present, in accordance with SFAS 142. Impairment charges are recorded for intangible assets when the estimated fair value is less
than the carrying value of that asset. During the six months ended June 30, 2008, the Company decided to no longer service medical receivables on a contingent fee basis. As a result, the Company recognized an impairment charge of $445,651, the
net carrying value of intangible assets for customer contracts and relationships associated with the contingent collection business. This impairment is recorded in Impairment of intangible assets in the consolidated statements of income.

Comprehensive Income

Components of comprehensive income are changes in equity other than those resulting from investments by owners and distributions to owners. Net income is the primary component of comprehensive income. The Companys only component
of comprehensive income other than net income is the change in unrealized gain or loss on derivatives qualifying as cash flow hedges, net of income taxes. The aggregate amount of such changes to equity that have not yet been recognized in net income
are reported in the equity portion of the accompanying consolidated statements of financial position as accumulated other comprehensive loss, net of income taxes. The accumulated other comprehensive income (loss), net of tax for the three and six
months ended June 30, 2008 is presented in the following table:



|                |  |                                |            |   |                              |   |            |  
|--------------- |  | ------------------------------ | ---------- | - | ---------------------------- | - | ---------- | -
|                |  | Three months endedJune 30,2008 |            |   | Six months endedJune 30,2008 |  
|                |  |                               
|Opening balance |  | $                              | (4,186,135 | ) |                              | $ | (2,012,127 | )
|Change          |  |                                | 2,116,691  |   |                              |   | (57,317    | )
|                |  |                                |            |   |                              |   |            |  
|Ending balance  |  | $                              | (2,069,444 | ) |                              | $ | (2,069,444 | )
|                |  |                                |            |   |                              |   |            |  

Reclassifications

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These
reclassifications have no effect on previously reported net income.

Recently Issued Accounting Pronouncements

SFAS No. 141 (R), Business Combinations and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations,
(SFAS 141(R)), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,



10



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##### Table of Contents

(SFAS 160). These pronouncements are required to be adopted concurrently and are effective for business combination transactions for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited, thus the provisions of these pronouncements will be effective for the Company in
fiscal year 2009. The Company is currently evaluating the potential impact of SFAS 141(R) and SFAS 160 on its consolidated statements of financial position, income and cash flows.

SFAS 161, Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161
requires expanded disclosures regarding the location and amounts of derivative instruments in an entitys financial statements, how derivative instruments and related hedged items are accounted for under SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect an entitys financial position, operating results and cash flows. SFAS 161 is effective for periods beginning on or after
November 15, 2008. The Company is currently evaluating what impact SFAS 161 will have on its consolidated statements of financial position, income and cash flows.

FASB Staff Position 142-3 Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued
Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets, (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating what
impact FSP 142-3 will have on its consolidated statements of financial position, income and cash flows.

2. Recapitalization

On April 24, 2007, the Company announced a recapitalization plan (the Recapitalization Plan) to return $150,000,000 to the Companys
shareholders. Pursuant to the Recapitalization Plan, on June 12, 2007, the Company completed a modified Dutch auction tender offer, resulting in the repurchase of approximately 1,982,250 of the Companys common shares for
an aggregate purchase price of $37,167,188, or $18.75 per share.

On June 28, 2007, under a repurchase agreement announced on
April 24, 2007, the Company purchased shares from (i) its largest shareholder, (ii) its Chairman, President and Chief Executive Officer, and (iii) its Senior Vice President and Chief Financial Officer. These shareholders elected
not to tender any shares in the tender offer and the repurchase agreement allowed them to maintain their pro rata beneficial ownership interest in the Company after giving effect to the tender offer and purchases under the repurchase agreement. The
Company repurchased 2,017,750 common shares from these shareholders for an aggregate price of $37,832,813, or $18.75 per share.

On
June 18, 2007, the Companys Board of Directors declared a special one-time cash dividend of $2.45 per share, or $74,891,700 in aggregate, which was paid on July 31, 2007 to holders of record on July 19, 2007.

In order to fund these transactions, the Company obtained a $150,000,000 term loan through a new credit agreement, (the New Credit Agreement)
aggregating $250,000,000, which was funded on June 12, 2007, and terminated its former credit agreement. Refer to Note 3, Notes Payable for further information.

As a result of the payment of the special one-time cash dividend, the Company adjusted the number of deferred stock units, as well as the exercise price
and number of outstanding stock options issued under the 2004 stock incentive plan, as amended, in order to avoid dilution to holders of the deferred stock units and outstanding stock options. Refer to Note 6, Share-Based
Compensation for further information.

During the quarter ended June 30, 2007, the Company incurred $1,100,085 in
transaction costs associated with the Dutch auction tender offer and recorded these costs as a reduction in stockholders equity. In addition, the Company incurred $2,315,710 in fees, which were recorded as a deferred financing cost and
included in other assets in the consolidated statements of financial position.



11



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##### Table of Contents

During the three and six months ended June 30, 2008, the Company recorded interest expense of
$3,114,541 and $6,349,592, respectively, in connection with borrowings under the New Credit Agreement. In addition, the Company amortized $155,817 and $284,935 in deferred financing costs for the three and six months ended June 30, 2008,
respectively. During the three and six months ended June 30, 2007, the Company recorded interest expense of $825,791 and $1,031,444, respectively, in connection with borrowings under the former credit agreement and New Credit Agreement. The Company
also amortized $305,488 and $362,432 in deferred financing costs for the three and six months ended June 30, 2007, respectively.

3. Notes Payable

The New Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, that
originated on June 5, 2007 was amended on March 10, 2008 (the Amended New Credit Agreement). Under the terms of the Amended New Credit Agreement, the Company has a five-year $100,000,000 revolving credit facility (the
Revolving Credit Facility) and a six-year $150,000,000 term loan facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Amended New Credit Facilities). The Amended New Credit
Facilities bear interest at prime or up to 125 basis points over prime depending upon the Companys liquidity, as defined in the Amended New Credit Agreement. Alternately, at the Companys discretion, the Company may borrow by entering
into one, two, three, six or twelve-month contracts based on the London Inter Bank Offer Rate (LIBOR) at rates between 150 to 250 basis points over the respective LIBOR rates, depending on the Companys liquidity. The Companys
Revolving Credit Facility includes an accordion loan feature that allows it to request a $25,000,000 increase as well as sublimits for $10,000,000 of letters of credit and for $10,000,000 of swingline loans. The Amended New Credit Agreement is
secured by a first priority lien on all of the Companys assets. The Amended New Credit Agreement also contains certain covenants and restrictions that the Company must comply with, which, as of June 30, 2008 were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June 29, 2009, (ii) 1.125 to 1.0 at any time on or after
June 30, 2009 and on or before December 30, 2010 or (iii) 1.0 to 1.0 at any time thereafter;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth cannot exceed (i) 3.0 to 1.0 at any time on or before September 29, 2008,
(ii) 2.75 to 1.0 at any time on or after September 30, 2008 and on or before December 30, 2008, (iii) 2.5 to 1.0 at any time on or after December 31, 2008 and on or before December 30, 2009, (iv) 2.25 to 1.0 at any
time on or after December 31, 2009 and on or before December 30, 2010, (v) 2.0 to 1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or (vi) 1.5 to 1.0 to any time thereafter; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth must equal or exceed $80,000,000 plus 50% of positive consolidated net income for three consecutive fiscal quarters ending
December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Amended New Credit Agreement contains a provision that requires the Company to repay Excess Cash Flow, as defined, to reduce the indebtedness
outstanding under its Amended New Credit Agreement. The annual repayment of the Companys Excess Cash Flow is effective with the issuance of our audited consolidated financial statements for fiscal year 2008. The repayment provisions are:



| |  |  | 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such
fiscal year; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount equal to a margin
of 0.25% to 0.50%, depending on the Companys liquidity, on the average amount available on the Revolving Credit Facility.

The
Amended New Credit Agreement requires the Company to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. Refer to Note 4, Derivative Financial
Instruments for additional information.



12



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##### Table of Contents

The Company had $189,500,000 and $191,250,000 principal balance outstanding on its Amended New Credit
Facilities at June 30, 2008 and December 31, 2007, respectively, of which $148,500,000 and $149,250,000 was part of the Term Loan Facility at June 30, 2008 and December 31, 2007, respectively, and $41,000,000 and $42,000,000 was
part of the Revolving Credit Facility, respectively. The Term Loan Facility requires quarterly repayments totaling $1,500,000 annually until March 2013 with the remaining balance due in June 2013.

The Company believes it is in compliance with all terms of the Amended New Credit Agreement as of June 30, 2008.

4. Derivative Financial Instruments

The Company may
periodically enter into derivative financial instruments, typically interest rate swap agreements, to reduce its exposure to fluctuations in interest rates on variable-rate debt and their impact on earnings and cash flows. The Company does not
utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the
creditworthiness of the swap counterparty to assess the counterpartys ability to honor its obligation.

Based on the provisions of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended and interpreted, the Company records derivative financial instruments at fair value. Refer to Note 9, Fair Value for additional
information.

In September 2007, the Company entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, it
swaps variable rates under its Term Loan Facility for fixed rates. At inception and for the first year, the notional amount of the swap is $125,000,000. Every year thereafter, on the anniversary of the swap agreement the notional amount will
decrease by $25,000,000. This swap agreement expires on September 13, 2012.

The Companys financial derivative instrument is
designated and qualifies as a cash flow hedge, and the effective portion of the gain or loss on such hedge is reported as a component of other comprehensive income in the consolidated financial statements. To the extent that the hedging relationship
is not effective, the ineffective portion of the change in fair value of the derivative is recorded in other income (expense). For the three and six months ended June 30, 2008, the ineffective portion of the change in fair value of the
derivative recorded in earnings was $610 and $1,409, respectively. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as through the hedging period. As of
June 30, 2008, the Company does not have any fair value hedges.

The fair value of the Companys cash flow hedge has been
recorded as a liability and is included with accrued liabilities in the consolidated statements of financial position. The fair value of the liability was $3,213,422 and $3,126,003 at June 30, 2008 and December 31, 2007, respectively.
Changes in fair value were recorded as an adjustment to other comprehensive income, net of tax, of $2,069,444 and $2,012,127 at June 30, 2008 and December 31, 2007, respectively. Amounts in other comprehensive income will be reclassified
into earnings under certain situations; for example, if the occurrence of the transaction is no longer probable or no longer qualifies for hedge accounting. The Company does not expect to reclassify any amount currently included in other
comprehensive income into earnings within the next 12 months.

5. Property and Equipment

Property and equipment, having estimated useful lives ranging from three to ten years, consisted of the following:



|                                   |  |               |             |   |                   |   |             |  
|---------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                   |  | June 30, 2008 |             |   | December 31, 2007 |  
|Computers and software             |  | $             | 17,245,588  |   |                   | $ | 12,838,395  |  
|Furniture and fixtures             |  |               | 10,296,031  |   |                   |   | 10,074,927  |  
|Leasehold improvements             |  |               | 2,251,969   |   |                   |   | 2,156,864   |  
|Equipment under capital lease      |  |               | 61,528      |   |                   |   | 133,063     |  
|Automobiles                        |  |               | 51,709      |   |                   |   | 51,709      |  
|                                   |  |               |             |   |                   |   |             |  
|Total property and equipment, cost |  |               | 29,906,825  |   |                   |   | 25,254,958  |  
|Less accumulated depreciation      |  |               | (15,980,591 | ) |                   |   | (14,248,300 | )
|                                   |  |               |             |   |                   |   |             |  
|Property and equipment, net        |  | $             | 13,926,234  |   |                   | $ | 11,006,658  |  
|                                   |  |               |             |   |                   |   |             |  



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6. Share-Based Compensation

The Company adopted a stock incentive plan (the Stock Incentive Plan) during February 2004 that authorizes the use of stock options, stock appreciation rights, restricted stock grants and units,
performance share awards and annual incentive awards to eligible key associates, non-associate directors and consultants. The Company has reserved 3,700,000 shares of common stock for issuance in conjunction with all options and other stock-based
awards to be granted under the plan. The purpose of the plan is (1) to promote the best interests of the Company and its stockholders by encouraging associates and other participants to acquire an ownership interest in the Company, thus
aligning their interests with those of stockholders and (2) to enhance the ability of the Company to attract and retain qualified associates, non-associate directors and consultants. No participant may be granted options during any one fiscal
year to purchase more than 500,000 shares of common stock. The Company records share-based compensation in accordance with SFAS No. 123(R), Share-Based Payment, a revision of SFAS 123, Accounting for Stock-Based
Compensation.

The Company amended its Stock Incentive Plan in May 2007 to expand an anti-dilution provision of the plan. The
additional compensation expense resulting from the amendment to the Stock Incentive Plan for the three months ended June 30, 2008 and 2007 was $2,790 and $491,925, respectively, and was $3,803 and $491,925 for the six months ended June 30,
2008 and 2007, respectively.

As discussed in Note 2, Recapitalization, the Company commenced a recapitalization transaction,
including declaration of a special one-time cash dividend, in the quarter ended June 30, 2007. The payment of the special one-time cash dividend resulted in an increase in the number of deferred stock units outstanding and a change to the
exercise price and number of outstanding stock options under the anti-dilution provisions of the Stock Incentive Plan. The methodology used to adjust the awards was consistent with Internal Revenue Code Section 409A and 424 and the proposed
regulations promulgated therein, compliance with which was necessary to avoid adverse tax issues for the holders of awards. Such methodology also results in the fair value of the adjusted awards post-dividend to be equal to that of the unadjusted
awards pre-dividend, with the result that there is no additional compensation expense in accordance with accounting for modifications to awards under SFAS 123(R).

Based on historical experience, the Company used an annual forfeiture rate of 15% for associate grants. Grants made to non-associate directors have no forfeiture rates associated with them due to immediate vesting of
grants to this group.

The Companys share-based compensation arrangements are described below.

Stock Options

The Company
utilizes the Whaley Quadratic approximation model, an intrinsic value method, to calculate the fair value of the stock awards on the date of grant using the assumptions noted in the following table. In addition, changes to the subjective input
assumptions can result in different fair market value estimates. With regard to the Companys assumptions stated below, the expected volatility is based on the historical volatility of the Companys stock and managements estimate of
the volatility over the contractual term of the options. The expected term of the option is based on managements estimate of the period of time for which the options are expected to be outstanding. The risk-free rate is derived from the
five-year U.S. Treasury yield curve on the date of grant.



|                    |  |         |  |                
|------------------- |  | ------- |  | ---------------
|Options issue year: |  | 2008    |  | 2007           
|Expected volatility |  | 46.50%  |  | 45.30% - 46.92%
|Expected dividends  |  | 0.00%   |  | 0.00%          
|Expected term       |  | 5 Years |  | 5 Years        
|Risk-free rate      |  | 3.09%   |  | 3.42% - 4.98%  

As of June 30, 2008, the Company had options outstanding for 712,991 shares of its common
stock under the 2004 stock incentive plan. These options have been granted to key associates and non-associate directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the Companys stock
at the date of grant and have 10-year contractual terms. The options granted to key associates generally vest between one and five years from the grant date, whereas the options granted to non-associate directors generally vest immediately. The fair
values of the stock options are expensed on a straight-line basis over the vesting period. The related expense for the three months ended June 30, 2008 included $205,045 in administrative expenses for non-associates directors and $73,576 in
salaries and benefits for associates. The related expense for the three months ended June 30, 2007 included $1,095,473 in administrative expenses for non-associates directors and $18,839 in salaries and benefits for associates. The related
expense for the six months ended June 30, 2008 included $205,045 in administrative expenses for



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non-associates directors and $124,746 in salaries and benefits for associates. The related expense for the six months ended June 30, 2007 included
$1,102,038 in administrative expenses for non-associate directors and $37,662 in salaries and benefits for associates. The total tax benefit recognized in the consolidated statements of income was $127,299 and $428,527 for the six months ended
June 30, 2008 and 2007, respectively. The following summarizes all stock option related transactions from January 1, 2008 through June 30, 2008.



|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|---------------------------- |  | ------------------ | - |  | ------------------------------ | ----- | ----------------------------------------- | ---- | ----------------------- | - | -------
|                             |  | OptionsOutstanding |   |  | Weighted-AverageExercise Price |       | Weighted-AverageRemainingContractual Term |      | AggregateIntrinsicValue
|January 1, 2008              |  | 691,599            |   |  | $                              | 14.03 |                                           |      |                         |   |        
|Granted                      |  | 42,500             |   |  |                                | 13.21 |                                           |      |                         |   |        
|Forfeited                    |  | (21,108            | ) |  |                                | 17.13 |                                           |      |                         |   |        
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Outstanding at June 30, 2008 |  | 712,991            |   |  |                                | 13.89 |                                           | 8.01 |                         | $ | 594,788
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Exercisable at June 30, 2008 |  | 457,630            |   |  | $                              | 16.01 |                                           | 7.42 |                         | $ |       
|                             |  |                    |   |  |                                |       |                                           |      |                         |   |        

The weighted-average fair value of the options granted during the six months ended June 30,
2008 and 2007 was $5.86 and $6.60 (as adjusted to reflect the impact of the special one-time cash dividend paid on July 31, 2007), respectively. No options were exercised during the six months ended June 30, 2008 and 2007.

As of June 30, 2008, there was $993,244 of total unrecognized compensation expense related to nonvested stock options granted under the stock
incentive plan. The unrecognized compensation expense is comprised of $881,992 for options expected to vest and $111,252 for options not expected to vest. The unrecognized compensation expense for options expected to vest is expected to be
recognized over a weighted-average period of 3.18 years.

Deferred Stock Units

As of June 30, 2008, the Company had granted 14,537 deferred stock units (DSUs) to non-associate directors under the Companys 2004
Stock Incentive Plan. DSUs represent the Companys obligation to deliver one share of common stock for each unit at a later date elected by the Director, such as when the Directors service on the Board ends. DSUs have no vesting
provisions and are not subject to forfeiture. DSUs do not have voting rights but would receive common stock dividend equivalents in the form of additional DSUs. The value of each DSU is equal to the market price of the Companys stock at the
date of grant.

The fair value of the DSUs granted during the six months ended June 30, 2008 were expensed immediately to correspond
with the vesting schedule. The related expense for the three months ended June 30, 2008 and 2007 included $31,255 and $32,466 in administrative expenses, respectively. The related expense for the six months ended June 30, 2008 and 2007
included $62,513 and $56,254 in administrative expenses, respectively.

The following summarizes all DSU related transactions from
January 1, 2008 through June 30, 2008.



|                |  |        |  |                                      |      
|--------------- |  | ------ |  | ------------------------------------ | -----
|                |  | DSUs   |  | Weighted-AverageGrant-DateFair Value
|January 1, 2008 |  | 8,965  |  | $                                    | 13.44
|Granted         |  | 5,572  |  |                                      | 11.22
|                |  |        |  |                                      |      
|June 30, 2008   |  | 14,537 |  | $                                    | 12.59
|                |  |        |  |                                      |      

As of June 30, 2008, there was no unrecognized expense related to nonvested DSUs.



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Restricted Shares

The Company grants restricted shares and restricted share units (restricted shares and restricted share units are referred to as RSUs) to key
associates and non-associate directors under the Stock Incentive Plan. Each RSU is equal to one share of the Companys common stock. As of June 30, 2008, the Company had RSUs outstanding for 274,565 shares of its common stock. The value of
the RSUs is equal to the market price of the Companys stock at the date of grant. The RSUs granted to associates generally vest over two to four years, based upon service or performance conditions. RSUs granted to non-associate directors
generally vest when the non-associate director terminates his or her board service.

The fair value of the RSUs is expensed on a
straight-line basis over the vesting period based on the number of RSUs that are expected to vest. For RSUs with performance conditions, if goals are not expected to be met, the compensation expense previously recognized is reversed. The related
expense for the three months ended June 30, 2008 included $154,147 in administrative expenses for non-associate directors and $27,443 in salaries and benefits for associates, which included a reversal of $99,240 for RSUs not expected to vest.
Salaries and benefits expense for the three months ended June 30, 2007 included a reversal of $164,884 for RSUs not expected to vest. The related expense for the six months ended June 30, 2008 included $154,147 in administrative expenses
for non-associate directors and $191,447 in salaries and benefits for associates, which included a reversal of $99,240 for RSUs not expected to vest. The related amount for the six months ended June 30, 2007 included a reversal of $119,916 for
RSUs not expected to vest.

The following summarizes all RSU related transactions from January 1, 2008 through June 30, 2008.



|                             |  |         |   |  |                                      |      
|---------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested RSUs               |  | RSUs    |   |  | Weighted-AverageGrant-DateFair Value
|Nonvested at January 1, 2008 |  | 290,760 |   |  | $                                    | 11.12
|Granted                      |  | 14,169  |   |  |                                      | 13.21
|Forfeited                    |  | (30,364 | ) |  |                                      | 18.88
|                             |  |         |   |  |                                      |      
|Nonvested at June 30, 2008   |  | 274,565 |   |  | $                                    | 10.37
|                             |  |         |   |  |                                      |      

As of June 30, 2008, there were $2,325,766 of total unrecognized expense related to nonvested
RSUs. The total unrecognized expense is comprised of $1,234,543 for RSUs expected to vest and $1,091,223 for shares not expected to vest. The unrecognized compensation expense for RSUs expected to vest is expected to be recognized over a
period of 2.71 years. There were 11,669 nonvested RSUs included in administrative expenses as of June 30, 2008 since the requisite service had been rendered.

7. Contingencies and Commitments

Litigation Contingencies

The Company is involved in certain legal matters that management considers incidental to its business. The Company recognizes liabilities for
contingencies and commitments when a loss is probable and estimable. The company recognizes expense for defense costs when incurred.

Management has evaluated pending and threatened litigation against the Company as of June 30, 2008 and does not believe its exposure to be material.

Other Contingencies

During the first quarter of 2008, the Company entered into an agreement
with a third party collecting on its behalf. Under this agreement, the Company will receive a total cash advance of $7,000,000, in varying installments, through November 2009. The Company received $2,500,000 through June 30, 2008, and incurred
$2,352,711 in court cost expenses, which were offset against a portion of the cash advance. A liability equal to the unused cash advance is included in accrued liabilities in the consolidated statements of financial position.

The agreement contains performance conditions for both parties and the Company may be required to refund a portion of the cash advance in certain
situations.



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8. Income Taxes

The Company recorded an income tax provision of $1,435,067 and $4,999,412 for the three months ended June 30, 2008 and 2007, respectively, and $5,606,286 and $10,915,580 for the six months ended June 30,
2008 and 2007, respectively. The provision for income tax expense reflects an effective income tax rate of 40.3% and 37.7% for the three months ended June 30, 2008 and 2007, respectively, and 38.6% and 37.6% for the six months ended
June 30, 2008 and 2007, respectively.

The Company records interest and penalties related to unrecognized tax benefits as income tax
expense. Interest and penalties related to the Companys uncertain tax positions at June 30, 2008 were not significant.

The federal
income tax returns of the Company for 2004, 2005, 2006, and 2007 are subject to examination by the IRS, generally for three years after the latter of their extended due date or when they are filed. The significant state income tax returns of the
Company are subject to examination by the state taxing authorities, for various periods generally up to four years.

9. Fair Value

The Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157) as of January 1, 2008. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies where other accounting pronouncements require or permit fair value measurements; it does not require any new fair value
measurements. According to FASB Staff Position No. FAS 157-2, the application of SFAS 157 to certain non-financial assets and liabilities is deferred to fiscal years beginning after November 15, 2008. The Companys goodwill and other
indefinite-lived intangible assets are measured at fair value on a recurring basis for impairment assessment. The deferral of SFAS 157 applies to these items.

The adoption of SFAS 157 did not have a material impact on the Companys consolidated statements of financial position, income or cash flows. The Company has chosen not to adopt SFAS No. 159, Fair
Value Option (SFAS 159). SFAS 159 allows entities to choose to measure eligible financial instruments and certain other items at fair value, that are not otherwise required to be measured at fair value.

As required under SFAS 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:



| | Level 1   | Valuation is based upon quoted prices for identical instruments traded in active markets.
| | ---------- | -----------------------------------------------------------------------------------------



| | Level 2   | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in the market.
| | ---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3   | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of
assumptions that market participants would use in pricing the asset or liability.
| | ---------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company uses the following methods and
assumptions to estimate the fair value of financial instruments.

Interest Rate Swap Agreement

The fair value of the interest rate swap agreement represents the amount the Company would receive or pay to terminate or otherwise settle the contract at
the consolidated statements of financial position date, taking into consideration current unearned gains and losses. The interest rate swap agreement was valued using Level 2 inputs, which are inputs other than quoted prices that are observable,
either directly or indirectly. The fair value was determined using a market approach, and is based on the three-month LIBOR curve for the remaining term of the swap agreement. Refer to Note 4, Derivative Financial Instruments, for
additional information about the fair value of the interest rate swap.

Purchased Receivables

The Company initially records purchased receivables at cost, which is discounted from the contractual receivable balance. The ending balance of the
purchased receivables is reduced as cash is received based upon the guidance of PB6 and SOP 03-3. The carrying value of receivables was $355,647,646 and $346,198,900 at June 30, 2008 and December 31, 2007, respectively. The Company
computes fair value of these receivables by discounting the future cash flows generated by its forecasting model using an adjusted weighted average cost of capital, reflective of other market participants cost of capital. The fair value of the
purchased receivables approximated carrying value at both June 30, 2008 and December 31, 2007.

Credit Facilities

The Companys Amended New Credit Facilities had carrying amounts of $189,500,000 and $191,250,000 as
of June 30, 2008 and December 31, 2007, respectively. The Company computed the approximate fair value of the Amended New Credit Facilities to be $159,661,383 and $158,652,946 as of June 30, 2008 and December 31, 2007,
respectively. The fair value of the Companys Amended New Credit Facilities is based on borrowing rates currently available to the Company and similar market participants.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Company Overview

We have been
purchasing and collecting defaulted or charged-off accounts receivable portfolios from consumer credit originators since the formation of our predecessor company in 1962. Charged-off receivables are the unpaid obligations of individuals to credit
originators, such as credit card issuers, consumer finance companies, healthcare providers, retail merchants, telecommunications and utility providers. Since these receivables are delinquent or past due, we are able to purchase them at a substantial
discount. We purchase and collect charged-off consumer receivable portfolios for our own account as we believe this affords us the best opportunity to use long-term strategies to maximize our profits.

The prices we paid for charged-off accounts receivable portfolios (paper) had steadily increased from 2002 through mid 2007. During the
latter half of 2007, the prices we paid for comparable paper began to decline. This decline continued into 2008, but prices remain at elevated levels compared to historical low prices that existed from 2000 to 2002. We believe the primary reason for
the continued decline in pricing is largely a result of macro-economic factors resulting from the expectation of a decline in the consumers ability to repay their current obligations as well as their past due debts. Macro-economic factors
include reduced availability of credit, falling real estate values, higher food and energy prices, increased unemployment and other factors (macro-economic factors). In addition, we believe that some competitors are experiencing their
own liquidity crises as their ability to fund portfolio purchases has been reduced when compared to much of the time since our initial public offering in 2004. We believe that increases in charged-off rates being experienced by major credit card
issuers is leading to an increase in supply of receivables available for sale. Reduced competition and increased supply may contribute to reduced pricing.

During the six months ended June 30, 2008, we invested $87.6 million (net of buybacks) in paper, with an aggregate face value of $2.5 billion, or 3.53% of face value. In the six months ended June 30, 2007,
we invested $73.8 million (net of buybacks through June 30, 2008) in paper, with an aggregate face amount of $1.9 billion, or 3.94% of face value. Our debt purchasing metrics (dollars invested, face amount, average purchase price, types of
paper and sources of paper) may vary significantly from quarter to quarter.

During the second quarter of 2008, our cash collections
declined by $0.2 million from the year ago period to $95.2 million. This is our first year over year decline in quarterly cash collections since we went public in 2004. The second quarter 2008 decline in cash collections when compared to the same
period of 2007 follows growth in cash collections during the first quarter of 2008 of 4.6% compared to the first quarter 2007 and growth for the full year 2007 of 8.9% when compared to the full year 2006. We believe that the decline in cash
collections is primarily a result of two factors. First, a more difficult collection environment attributable to macro-economic factors is leading to reduced collection results on all vintages and types of paper. We expect this more difficult
collections environment to continue and are addressing our collection tactics and operations to deal with the current economic environment. Second, we believe our robust purchasing activity since the fourth quarter of 2006 has outpaced our staffing
of account representatives to collect on this newly acquired paper which may be leading to reduced collection results particularly on older vintages of paper. We are addressing what we believe to be a capacity constraint on collections by forwarding
more accounts to our agency network for collection on our behalf. We increased the volume of accounts being forwarded in the second quarter of 2008 and expect additional cash collections to be generated from this initiative in the second half of
2008. The increased forwarding activities may result in lower productivity of our in-house collections staff, but improve overall collections. Over the long term, we expect to increase our in-house staffing to better align with our inventory of
paper.

Net income for the six months ended June 30, 2008 was $8.9 million, a decline of 50.9% from $18.1 million for the six months
ended June 30, 2007. Contributing to our decline in net income was higher amortization of purchased receivables in determining purchased receivable revenues and increased interest expense that we incurred subsequent to the recapitalization
transaction completed in July 2007. Cash collections increased by $4.2 million or 2.2% to $195.5 million for the six months ended June 30, 2008 compared to $191.3 million for the six months ended June 30, 2007. Despite the $4.2 million
increase in cash collections, purchased receivable revenues declined by $12.4 million because amortization increased by $16.5 million. Amortization of purchased receivables, the difference between cash collections and purchased receivable revenues,
increased to 38.6% of cash collections for the six months ended June 30, 2008 versus 30.8% in the six months ended June 30, 2007. Included in amortization of purchased receivables are net impairments of $5.4 million and $9.6 million for
the six months ended June 30, 2008 and 2007, respectively. The increased purchased receivables amortization rate is primarily a result of the elevating pricing environment that we have experienced over the last several years in addition to placing
the first quarter of 2005 aggregate and all healthcare portfolios on the cost recovery method. As prices have risen, our expected collection multiple of purchase price has come down. Macro-economic factors negatively affecting consumers
financial well-being is also a factor in the lower multiples of purchase price expected to be collected, even as pricing for paper falls. The lower multiple of purchase price expected to be collected generally results in a lower IRR to be assigned
for revenue recognition purposes. When lower yields are assigned, a larger proportion of our cash collections are treated as purchased receivable amortization instead of purchase receivable revenues.



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Average borrowings on our Amended New Credit Facilities in 2008 were $171.6 million for the six months
ended June 30, 2008, but only $43.1 million for the six months ended June 30, 2007. The increased borrowings are primarily the result of the $150.0 million borrowed to fund the return of capital to shareholders in June and July of 2007.
Additionally, we have borrowed to fund our purchase of paper since late 2006. As a result of these two factors, interest expense increased by $5.2 million to $6.6 million in the six months ended June 30, 2008 compared to $1.4 million in the six
months ended June 30, 2007.

Total operating expenses were $99.8 million for the six months ended June 30, 2008 a decrease of
$3.2 million from $103.0 million in the six months ended June 30, 2007. As a percentage of cash collections, operating expenses were 51.0% and 53.8% for the six months ended June 30, 2008 and 2007, respectively. Salaries and benefits,
collections expense and occupancy costs declined compared to the six months ended June 30, 2007, by $0.7 million, $1.6 million and $0.7 million, respectively. Administrative expenses increased by $0.1 million to $5.6 million in the six months
ended June 30, 2008 compared to $5.5 million in the six months ended June 30, 2007. Other operating expenses, including depreciation and amortization, restructuring charges and impairment of intangible assets decreased by $0.2 million in
the six months ended June 30, 2008 compared to June 30, 2007. The reduced salaries and benefits costs reflect an increasing portion of our cash collections coming from outside attorneys and agencies. Our collections from third party
relationships (attorneys and collection agencies) have increased to 28.9% of total cash collections for the six months ended June 30, 2008 from 24.4% for the six months ended June 30, 2007. Total forwarding fees paid on cash collections
from these third party relationships have increased to $16.6 million from $13.7 million in the six months ended June 30, 2008 versus the six months ended June 30, 2007. The remaining expenses included in collections expense declined by
$4.5 million during the same period. The $4.5 million decline in the six months ended June 30, 2008 primarily reflected reduced legal collection costs. These savings were realized from a combination of reduced in-house collections, better
expense management and our efforts to better match legal cash collections with legal collection expenses. Occupancy expenses declined by $0.7 million in the six months ended June 30, 2008 versus the six months ended June 30, 2007 resulting
primarily from the consolidation of two call centers during 2007.

We adopted SFAS No. 157 as of January 1, 2008. According to
FASB Staff Position No. FAS 157-2, the application of SFAS 157 to certain non-financial assets and liabilities is deferred to fiscal years beginning after November 15, 2008. Our goodwill and other intangible assets are measured at fair value on
a recurring basis for impairment assessment. The deferral of SFAS 157 applies to these items. Adoption of SFAS 157 did not have a material impact on our consolidated statements of financial position, income or cash flows. We have chosen not to adopt
SFAS No. 159, Fair Value Option.

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties and that are made in good faith pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements about future events or our future financial performance. In some cases, forward-looking statements can be
identified by terminology such as may, will, should, expect, anticipate, intend, plan, believe, estimate, potential or
continue, the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various
factors, including those we discuss in our annual report on Form 10-K for the year ended December 31, 2007 in the section titled Risk Factors and elsewhere in this report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes
in our expectations. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:



| |  |  | our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | our ability to recover sufficient amounts on our charged-off receivable portfolios;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | our ability to hire and retain qualified personnel;
| | - |  | ---------------------------------------------------



| |  |  | a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other debt collection laws change;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors willingness to pay the debt we acquire;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our ability to make reasonable estimates of the timing and amount of future cash receipts and values and assumptions underlying the calculation of the net
impairment charges for purposes of recording purchased receivable revenues in accordance with Accounting Standards Executive Committee Statement of Position 03-3 as well as the Accounting Standards Executive Committee Practice Bulletin 6;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to acquire and to collect on charged-off receivable portfolios in industries in which we have little or no experience;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain existing, and secure additional financing on acceptable terms;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the loss of any of our executive officers or other key personnel;
| | - |  | -----------------------------------------------------------------



| |  |  | the costs, uncertainties and other effects of legal and administrative proceedings;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | our ability to effectively manage excess capacity, reduce workforce or close remote call center locations;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the temporary or permanent loss of our computer or telecommunications systems, as well as our ability to respond to changes in technology and increased competition;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our overall performance based upon significant macroeconomic conditions;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in interest rates could adversely affect earnings or cash flows;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | other unanticipated events and conditions that may hinder our ability to compete.
| | - |  | ---------------------------------------------------------------------------------



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Results of Operations

The following table sets forth selected consolidated statement of income data expressed as a percentage of total revenues and as a percentage of cash collections for the periods indicated.



|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|------------------------------------- |  | -------------------------- | - |  | --------------------------- | - |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                      |  | Percent of Total Revenues  |   |  | Percent of Cash Collections |  
|                                      |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30,    |   |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                      |  | 2008                       |   |  | 2007                        |   |  | 2008                       |   |  | 2007                     |   |  | 2008 |   |  | 2007 |   |  | 2008 |   |  | 2007 |  
|Revenues                              |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Purchased receivable revenues, net    |  | 99.5                       | % |  | 99.5                        | % |  | 99.3                       | % |  | 99.3                     | % |  | 59.0 | % |  | 68.6 | % |  | 61.3 | % |  | 69.2 | %
|Gain on sale of purchased receivables |  | 0.0                        |   |  | 0.0                         |   |  | 0.1                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.1  |   |  | 0.0  |  
|Other revenues, net                   |  | 0.5                        |   |  | 0.5                         |   |  | 0.6                        |   |  | 0.7                      |   |  | 0.3  |   |  | 0.4  |   |  | 0.4  |   |  | 0.4  |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Total revenues                        |  | 100.0                      |   |  | 100.0                       |   |  | 100.0                      |   |  | 100.0                    |   |  | 59.3 |   |  | 69.0 |   |  | 61.8 |   |  | 69.6 |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Expenses                              |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Salaries and benefits                 |  | 36.7                       |   |  | 31.8                        |   |  | 35.3                       |   |  | 32.6                     |   |  | 21.8 |   |  | 22.0 |   |  | 21.8 |   |  | 22.7 |  
|Collections expense                   |  | 41.0                       |   |  | 36.0                        |   |  | 37.4                       |   |  | 35.1                     |   |  | 24.3 |   |  | 24.8 |   |  | 23.1 |   |  | 24.5 |  
|Occupancy                             |  | 3.4                        |   |  | 3.5                         |   |  | 3.2                        |   |  | 3.5                      |   |  | 2.0  |   |  | 2.4  |   |  | 2.0  |   |  | 2.4  |  
|Administrative                        |  | 5.2                        |   |  | 5.0                         |   |  | 4.7                        |   |  | 4.1                      |   |  | 3.1  |   |  | 3.4  |   |  | 2.9  |   |  | 2.9  |  
|Restructuring charges                 |  | 0.0                        |   |  | 0.5                         |   |  | 0.0                        |   |  | 0.4                      |   |  | 0.0  |   |  | 0.4  |   |  | 0.0  |   |  | 0.2  |  
|Depreciation and amortization         |  | 1.7                        |   |  | 1.6                         |   |  | 1.6                        |   |  | 1.6                      |   |  | 1.0  |   |  | 1.1  |   |  | 1.0  |   |  | 1.1  |  
|Impairment of intangible assets       |  | 0.0                        |   |  | 0.0                         |   |  | 0.4                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.2  |   |  | 0.0  |  
|Loss on disposal of equipment         |  | 0.0                        |   |  | 0.0                         |   |  | 0.0                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Total operating expenses              |  | 88.0                       |   |  | 78.4                        |   |  | 82.6                       |   |  | 77.3                     |   |  | 52.2 |   |  | 54.1 |   |  | 51.0 |   |  | 53.8 |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Income from operations                |  | 12.0                       |   |  | 21.6                        |   |  | 17.4                       |   |  | 22.7                     |   |  | 7.1  |   |  | 14.9 |   |  | 10.8 |   |  | 15.8 |  
|Other income (expense)                |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Interest income                       |  | 0.0                        |   |  | 0.3                         |   |  | 0.0                        |   |  | 0.2                      |   |  | 0.0  |   |  | 0.2  |   |  | 0.0  |   |  | 0.1  |  
|Interest expense                      |  | (5.7                       | ) |  | (1.7                        | ) |  | (5.4                       | ) |  | (1.1                     | ) |  | (3.4 | ) |  | (1.2 | ) |  | (3.4 | ) |  | (0.7 | )
|Other                                 |  | 0.0                        |   |  | 0.0                         |   |  | 0.0                        |   |  | 0.0                      |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Income before income taxes            |  | 6.3                        |   |  | 20.2                        |   |  | 12.0                       |   |  | 21.8                     |   |  | 3.7  |   |  | 13.9 |   |  | 7.4  |   |  | 15.2 |  
|Income taxes                          |  | 2.5                        |   |  | 7.6                         |   |  | 4.6                        |   |  | 8.2                      |   |  | 1.5  |   |  | 5.2  |   |  | 2.8  |   |  | 5.7  |  
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  
|Net income                            |  | 3.8                        | % |  | 12.6                        | % |  | 7.4                        | % |  | 13.6                     | % |  | 2.2  | % |  | 8.7  | % |  | 4.6  | % |  | 9.5  | %
|                                      |  |                            |   |  |                             |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |   |  |      |  

Three Months Ended June 30, 2008 Compared To Three Months Ended June 30, 2007

Revenue

Total
revenues were $56.5 million for the three months ended June 30, 2008, a decrease of $9.4 million, or 14.3%, from total revenues of $65.9 million for the three months ended June 30, 2007. Purchased receivable revenues were $56.2 million for
the three months ended June 30, 2008, a decrease of $9.3 million, or 14.2%, from the three months ended June 30, 2007 amount of $65.5 million. Purchased receivable revenues reflect an amortization rate, or the difference between cash
collections and revenue, of 41.0%, an increase of 9.7%, from the amortization rate of 31.3% for the three months ended June 30, 2007. The increased amortization rate is primarily due to lower average internal rates of return assigned to recent
years purchases, impairments and the placing of the first quarter of 2005 aggregate and all healthcare portfolios on the cost recovery method. Purchased receivable revenues reflect net impairments recognized during the three months ended
June 30, 2008 and 2007 of $5.0 million and $5.1 million, respectively. Cash collections on charged-off consumer receivables decreased 0.3% to $95.2 million for the three months ended June 30, 2008 from $95.4 million for the same period in
2007. Cash collections for the three months ended June 30, 2008 and 2007 include collections from fully amortized portfolios of $20.3 million and $21.8 million, respectively, of which 100% were reported as revenue.

During the three months ended June 30, 2008, we acquired charged-off consumer receivable portfolios with an aggregate face value of $1.9 billion at
a cost of $65.3 million, or 3.38% of face value, net of buybacks. Included in these purchase totals were 31 portfolios with an aggregate face value of $308.3 million at a cost of $19.7 million, or 6.41% of face value, which were acquired through 12
forward flow contracts. Forward flow contracts commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables for a fixed percentage of the face value. Revenues on portfolios purchased from our top
three sellers during vintage years 1997 through 2008 were $14.8 million and $18.1



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million during the three months ended June 30, 2008 and 2007, respectively, with the same sellers included in the top three in both three-month periods.
During the three months ended June 30, 2007, we acquired charged-off consumer receivable portfolios with an aggregate face value of $1.1 billion at a cost of $37.6 million, or 3.39% of face value (adjusted for buybacks through June 30,
2008). Included in these purchase totals were 19 portfolios with an aggregated face value of $92.5 million at a cost of $5.0 million, or 5.40% of face value (adjusted for buybacks through June 30, 2008), which were acquired through seven
forward flow contracts. From period to period we may buy charged-off receivables of varying age, types and cost. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next.

Operating Expenses

Total operating
expenses were $49.7 million for the three months ended June 30, 2008, a decrease of $2.0 million, or 3.9%, compared to total operating expenses of $51.7 million for the three months ended June 30, 2007. Total operating expenses were 52.2%
of cash collections for the three months ended June 30, 2008, compared with 54.1% for the same period in 2007. Operating expenses are traditionally measured in relation to revenues. However, we measure operating expenses in relation to cash
collections. We believe this is appropriate because of varying amortization rates, which is the difference between cash collections and revenues recognized, from period to period, due to seasonality of collections and other factors that can distort
the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

Salaries and Benefits.Salaries and benefits expense were $20.7 million for the three months ended June 30, 2008, a decrease of $0.3 million,
or 1.0%, compared to salaries and benefits expense of $21.0 million for the three months ended June 30, 2007. Salaries and benefits expense were 21.8% of cash collections for the three months ended June 30, 2008, compared with 22.0% for
the same period in 2007. Salaries and benefits expense decreased primarily because an increasing portion of our cash collections came from outside attorneys and agencies for the three months ended June 30, 2008 compared to the same period in
2007.

Since going public in 2004, we had granted equity compensation only to certain key associates and non-associate directors. During
2007, we began issuing equity awards to a broader group of management associates and expanded the use of performance conditions relating to some equity grants for senior executives. We recognized $0.1 million of compensation expense and a reversal
of $0.1 million for shares not expected to vest in salary and benefit expenses for the three months ended June 30, 2008 and 2007, respectively, as it related to stock-based compensation awards granted to associates. As of June 30, 2008,
there was $3.3 million of total unrecognized compensation expense related to nonvested awards of which $2.1 million was expected to vest over a weighted average period of 2.90 years. As of June 30, 2007, there were $0.3 million total
unrecognized compensation expense related to nonvested awards, which was expected to vest over a weighted average period of 3.63 years.

Collections Expense.Collections expense was $23.1 million for the three months ended June 30, 2008, a decrease of $0.6 million, or 2.4%, compared to collections expense of $23.7 million for the three months ended June 30,
2007. Collections expense was 24.3% of cash collections during the three months ended June 30, 2008 compared with 24.8% for the same period in 2007. The collections expense decreased primarily due to a $2.0 million decline in legal collections
costs, excluding legal forwarding fees. These savings were realized from a combination of reduced in-house collections and better expense management. This decrease was partially offset by increased forwarding fees of $1.1 million paid on cash
collections from third parties relationships (attorneys and collection agencies) as a result of an increase in our collections from third parties relationships to 29.0% of total cash collections for the three months ended June 30, 2008, from
24.9% for the three months ended June 30, 2007. In addition to these increased forwarding fees, there was a net $0.3 million increase in mailing and other data provider costs.

Occupancy.Occupancy expense was $1.9 million for the three months ended June 30, 2008, a decrease of $0.4 million, or 16.4%, compared to
occupancy expense of $2.3 million for the three months ended June 30, 2007. Occupancy expense was 2.0% of cash collections for the three months ended June 30, 2008 compared with 2.4% for the same period in 2007. Occupancy expense decreased
primarily due to the consolidation of two call centers during 2007.

Administrative.Administrative expenses decreased to $3.0
million for the three months ended June 30, 2008, from $3.3 million for the three months ended June 30, 2007, reflecting a $0.3 million, or 10.1%, decrease. Administrative expenses were 3.1% of cash collections during the three months
ended June 30, 2008 compared with 3.4% for the same period in 2007. Administrative expenses for the quarter ended June 30, 2007 include $0.5 million in share-based compensation expense relating to an amendment to our Stock Incentive Plan
to add an anti-dilution provision.



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Restructuring Charges.There were no restructuring charges for the three months ended
June 30, 2008. Pre-tax restructuring charges were $0.3 million for the three months ended June 30, 2007 as a result of our plans to close our White Marsh, Maryland and Wixom, Michigan offices during 2007. Charges were primarily related to
associate one-time termination benefits and changes to the service life of certain long-lived assets.

Depreciation and Amortization.Depreciation and amortization expense was $0.9 million for the three months ended June 30, 2008, a decrease of $0.2 million or 14.6% compared to depreciation and amortization expense of $1.1 million for the three months ended June 30,
2007. Depreciation and amortization expense was 1.0% of cash collections during the three months ended June 30, 2008 compared with 1.1% for the same period in 2007.

Interest Income. Interest income was $6,778 for the three months ended June 30, 2008, a decrease of $199,619 compared to $206,397 for the three months ended June 30, 2007.

Interest Expense.Interest expense was $3.3 million for the three months ended June 30, 2008, an increase of $2.2 million compared to
interest expense of $1.1 million for the three months ended June 30, 2007. Interest expense was 3.4% of cash collections during the three months ended June 30, 2008 compared with 1.2% for the same period in 2007. The increase in interest
expense was due to increased average borrowings during the three months ended June 30, 2008 compared to the same period in 2007. Average borrowings during the quarter ended June 30, 2008 reflect the new $150.0 million Term Loan Facility
that was funded on June 12, 2007 to finance our stock repurchases and special one-time cash dividend.

Income Taxes.Income tax
expense of $1.4 million reflects a federal tax rate of 35.5% and a state tax rate of 4.8% (net of federal tax benefit) for the three months ended June 30, 2008. For the three months ended June 30, 2007, income tax expense was $5.0 million
and reflected a federal tax rate of 35.2% and state tax rate of 2.5% (net of federal tax benefit). The 2.3% increase in the state rate was due to changing apportionment percentages among the various states. Income tax expense decreased $3.6 million,
or 71.3% from income tax expense of $5.0 million for the three months ended June 30, 2007. The decrease in tax expense was due to a decrease in pre-tax financial statement income, which was $3.6 million for the three months ended June 30,
2008, compared to $13.3 million for the same period in 2007.

Six Months Ended June 30, 2008 Compared To Six Months Ended
June 30, 2007

Revenue

Total revenues were $120.8 million for the six months ended June 30, 2008, a decrease of $12.3 million, or 9.3%, from total revenues of $133.2 million for the six months ended June 30, 2007. Purchased
receivable revenues were $119.9 million for the six months ended June 30, 2008, a decrease of $12.4 million, or 9.3%, from the six months ended June 30, 2007 amount of $132.3 million. Purchased receivable revenues reflect an amortization
rate, or the difference between cash collections and revenue, of 38.6%, an increase of 7.8%, from the amortization rate of 30.8% for the six months ended June 30, 2007. The increased amortization rate is primarily due to lower average internal
rates of return assigned to recent years purchases as well as placing the first quarter of 2005 aggregate and all healthcare portfolios on the cost recovery method. Purchased receivable revenues reflect net impairments recognized during the
six months ended June 30, 2008 and 2007 of $5.4 million and $9.6 million, respectively. Cash collections on charged-off consumer receivables increased 2.2% to $195.5 million for the six months ended June 30, 2008 from $191.3 million for
the same period in 2007. Cash collections for the six months ended June 30, 2008 and 2007 include collections from fully amortized portfolios of $42.5 million and $40.3 million, respectively, of which 100% were reported as revenue.

During the six months ended June 30, 2008, we acquired charged-off consumer receivable portfolios with an aggregate face value of $2.5 billion at
a cost of $87.6 million, or 3.53% of face value, net of buybacks. Included in these purchase totals were 66 portfolios with an aggregate face value of $514.8 million at a cost of $30.8 million, or 5.98% of face value, which were acquired through 12
forward flow contracts. Revenues on portfolios purchased from our top three sellers during vintage years 1997 through 2008 were $32.6 million and $36.6 million during the six months ended June 30, 2008, and 2007, respectively, with the same
sellers included in the top three in both six-month periods. During the six months ended June 30, 2007, we acquired charged-off consumer receivable portfolios with an aggregate face value of $1.9 billion at a cost of $73.8 million, or 3.94% of
face value (adjusted for buybacks through June 30, 2008). Included in these purchase totals



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were 34 portfolios with an aggregated face value of $148.1 million at a cost of $7.7 million, or 5.18% of face value (adjusted for buybacks through
June 30, 2008), which were acquired through eight forward flow contracts. From period to period we may buy charged-off receivables of varying age, types and cost. As a result, the cost of our purchases, as a percent of face value, may fluctuate
from one period to the next.

Operating Expenses

Total operating expenses were $99.8 million for the six months ended June 30, 2008, a decrease of $3.2 million, or 3.1%, compared to total operating expenses of $103.0 million for the six months ended
June 30, 2007. Total operating expenses were 51.0% of cash collections for the six months ended June 30, 2008, compared with 53.8% for the same period in 2007. The decrease as a percent of cash collections was due to decreases in
collections expense, salaries and benefits and occupancy, and was partially offset by an increase in administrative expense. Operating expenses are traditionally measured in relation to revenues. However, we measure operating expenses in relation to
cash collections. We believe this is appropriate because of varying amortization rates, which is the difference between cash collections and revenues recognized, from period to period, due to seasonality of collections and other factors that can
distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

Salaries and Benefits.Salaries and benefits expense were $42.7 million for the six months ended June 30, 2008, a decrease of $0.7 million,
or 1.7%, compared to salaries and benefits expense of $43.4 million for the six months ended June 30, 2007. Salaries and benefits expense were 21.8% of cash collections for the six months ended June 30, 2008, compared with 22.7% for the
same period in 2007. Salaries and benefits expense decreased primarily because an increasing portion of our cash collections came from outside attorneys and agencies for the six months ended June 30, 2008 compared to the same period in 2007.
The decrease was partially offset by an increase in equity compensation expense.

Since going public in 2004, we had granted equity
compensation only to certain key associates and non-associate directors. During 2007, we began issuing equity awards to a broader group of management associates and expanded the use of performance conditions relating to some equity grants for senior
executives. We recognized $0.3 million and a reversal of $0.1 million for shares not expected to vest in salary and benefit expenses for the six months ended June 30, 2008 and 2007, respectively, as it related to stock-based compensation awards
granted to associates. As of June 30, 2008, there was $3.3 million of total unrecognized compensation expense related to nonvested awards of which $2.1 million was expected to vest over a weighted average period of 2.90 years. As of
June 30, 2007, there was $0.3 million total unrecognized compensation expense related to nonvested awards, which was expected to vest over a weighted average period of 3.63 years.

Collections Expense.Collections expense was $45.2 million for the six months ended June 30, 2008, a decrease of $1.6 million, or 3.3%,
compared to collections expense of $46.8 million for the six months ended June 30, 2007. Collections expense was 23.1% of cash collections during the six months ended June 30, 2008 compared with 24.5% for the same period in 2007. The
collections expense decreased primarily due to a $4.5 million decline in legal collections costs, excluding legal forwarding fees, and other data provider costs. These savings were realized from a combination of reduced in-house collections, better
expense management and our efforts to better match legal cash collections with legal collection expenses. This decrease was partially offset by increased forwarding fees of $2.9 million paid on cash collections from third parties relationships
(attorneys and collection agencies) as a result of an increase in our collections from third parties relationships to 28.9% of total cash collections for the six months ended June 30, 2008, from 24.4% for the six months ended June 30,
2007.

Occupancy.Occupancy expense was $3.9 million for the six months ended June 30, 2008, a decrease of $0.7 million, or
17.0%, compared to occupancy expense of $4.6 million for the six months ended June 30, 2007. Occupancy expense was 2.0% of cash collections for the six months ended June 30, 2008 compared with 2.4% for the same period in 2007. Occupancy
expense decreased primarily due to the consolidation of two call centers during 2007.

Administrative.Administrative expenses
increased to $5.6 million for the six months ended June 30, 2008, from $5.5 million for the six months ended June 30, 2007, reflecting a $0.1 million, or 2.3%, increase. Administrative expenses were 2.9% of cash collections during the six
months ended June 30, 2008 and 2007, respectively.

Restructuring Charges.There were no restructuring charges for the six
months ended June 30, 2008. Pre-tax restructuring charges were $0.5 million for the six months ended June 30, 2007 as a result of our plans to close our White Marsh, Maryland and Wixom, Michigan offices during 2007. Charges were primarily
related to associate one-time termination benefits and changes to the service life of certain long-lived assets.



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Depreciation and Amortization.Depreciation and amortization expense was $1.9 million for the six
months ended June 30, 2008, a decrease of $0.3 million or 10.1% compared to depreciation and amortization expense of $2.2 million for the six months ended June 30, 2007. Depreciation and amortization expense was 1.0% of cash collections
during the six months ended June 30, 2008 compared with 1.1% for the same period in 2007.

Impairment of Intangible Assets.Impairment of intangible assets was $0.4 million for the six months ended June 30, 2008 as we decided to discontinue the medical contingent collection business. As a result, we recognized an impairment charge of the net carrying balance of
intangible assets for customer contracts and relationships associated with the contingent collection business.

Interest Income.Interest income was $30,029 for the six months ended June 30, 2008, a decrease of $192,095 compared to $222,124 for the six months ended June 30, 2007.

Interest Expense.Interest expense was $6.6 million for the six months ended June 30, 2008, an increase of $5.2 million compared to interest expense of $1.4 million for the six months ended June 30,
2007. Interest expense was 3.4% of cash collections during the six months ended June 30, 2008 compared with 0.7% for the same period in 2007. The increase in interest expense was due to increased average borrowings during the six months ended
June 30, 2008 compared to the same period in 2007. Average borrowings during the quarter ended June 30, 2008 reflect the new $150.0 million Term Loan Facility that was funded on June 12, 2007 to finance our recapitalization and
special one-time cash dividend. Interest expense also includes the amortization of capitalized bank fees of $0.3 million and $0.4 million for the six months ended June 30, 2008 and 2007, respectively.

Income Taxes.Income tax expense of $5.6 million reflects a federal tax rate of 35.3% and a state tax rate of 3.3% (net of federal tax benefit)
for the six months ended June 30, 2008. For the six months ended June 30, 2007, income tax expense was $10.9 million and reflected a federal tax rate of 35.2% and state tax rate of 2.4% (net of federal tax benefit including utilitization
of state net operating losses). Income tax expense decreased $5.3 million, or 48.6% from income tax expense of $10.9 million for the six months ended June 30, 2007. The decrease in tax expense was due to a decrease in pre-tax financial
statement income, which was $14.5 million for the six months ended June 30, 2008, compared to $29.0 million for the same period in 2007.



25



---

##### Table of Contents

Supplemental Performance Data

Portfolio Performance

The following table summarizes our historical portfolio purchase price
and cash collections on an annual vintage basis from January 1, 2002 through June 30, 2008.



|                |  |                        |  |                   |         |                  |   |                                       |  |                           |         |                                                            |   |           |  |     |  
|--------------- |  | ---------------------- |  | ----------------- | ------- | ---------------- | - | ------------------------------------- |  | ------------------------- | ------- | ---------------------------------------------------------- | - | --------- |  | --- | -
|Purchase Period |  | Number ofPortfolios    |  | PurchasePrice (1) |         | Cash Collections |   | EstimatedRemainingCollections (2,3,4) |  | TotalEstimatedCollections |         | Total EstimatedCollections as aPercentage ofPurchase Price |  
|                |  | (dollars in thousands) | 
|2002            |  | 94                     |  | $                 | 72,255  |                  | $ | 341,958                               |  | $                         | 6,197   |                                                            | $ | 348,155   |  | 482 | %
|2003            |  | 76                     |  |                   | 87,152  |                  |   | 385,091                               |  |                           | 56,654  |                                                            |   | 441,745   |  | 507 |  
|2004            |  | 106                    |  |                   | 86,549  |                  |   | 221,000                               |  |                           | 72,798  |                                                            |   | 293,798   |  | 339 |  
|2005            |  | 104                    |  |                   | 100,768 |                  |   | 155,245                               |  |                           | 75,463  |                                                            |   | 230,708   |  | 229 |  
|2006 (4)        |  | 154                    |  |                   | 142,267 |                  |   | 180,510                               |  |                           | 227,976 |                                                            |   | 408,486   |  | 287 |  
|2007            |  | 158                    |  |                   | 169,805 |                  |   | 87,932                                |  |                           | 282,504 |                                                            |   | 370,436   |  | 218 |  
|2008 (5)        |  | 99                     |  |                   | 87,610  |                  |   | 8,551                                 |  |                           | 196,877 |                                                            |   | 205,428   |  | 234 |  
|                |  |                        |  |                   |         |                  |   |                                       |  |                           |         |                                                            |   |           |  |     |  
|Total           |  | 791                    |  | $                 | 746,406 |                  | $ | 1,380,287                             |  | $                         | 918,469 |                                                            | $ | 2,298,756 |  | 308 | %
|                |  |                        |  |                   |         |                  |   |                                       |  |                           |         |                                                            |   |           |  |     |  



|(1) | Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also referred to
as buybacks) less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Estimated remaining collections are based on historical cash collections. Please refer to Forward-Looking Statements on page 19 and Critical Accounting Policies on page 34 for
further information regarding these estimates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios using up to an 84 month collection forecast from the date of
purchase.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes only six months of activity through June 30, 2008.
|--- | -----------------------------------------------------------

The following tables summarize the remaining unamortized balances of our purchased receivable portfolios by year of purchase as of June 30, 2008.



|                |  |                                       |         |                   |   |                                                    |  |      |                                           |  |       |  
|--------------- |  | ------------------------------------- | ------- | ----------------- | - | -------------------------------------------------- |  | ---- | ----------------------------------------- |  | ----- | -
|Purchase Period |  | UnamortizedBalance as ofJune 30, 2008 |         | PurchasePrice (1) |   | UnamortizedBalance as aPercentage ofPurchase Price |  |      | UnamortizedBalance as aPercentage ofTotal | 
|                |  | (dollars in thousands)                |         |                   |   |                                                   
|2002            |  | $                                     | 623     |                   | $ | 72,255                                             |  | 0.9  | %                                         |  | 0.2   | %
|2003            |  |                                       | 7,945   |                   |   | 87,152                                             |  | 9.1  |                                           |  | 2.2   |  
|2004            |  |                                       | 26,392  |                   |   | 86,549                                             |  | 30.5 |                                           |  | 7.4   |  
|2005            |  |                                       | 38,123  |                   |   | 100,768                                            |  | 37.8 |                                           |  | 10.7  |  
|2006 (2)        |  |                                       | 76,876  |                   |   | 142,267                                            |  | 54.0 |                                           |  | 21.6  |  
|2007            |  |                                       | 123,064 |                   |   | 169,805                                            |  | 72.5 |                                           |  | 34.6  |  
|2008 (3)        |  |                                       | 82,625  |                   |   | 87,610                                             |  | 94.3 |                                           |  | 23.3  |  
|                |  |                                       |         |                   |   |                                                    |  |      |                                           |  |       |  
|Total           |  | $                                     | 355,648 |                   | $ | 746,406                                            |  | 47.6 | %                                         |  | 100.0 | %
|                |  |                                       |         |                   |   |                                                    |  |      |                                           |  |       |  



|(1) | Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.
|--- | --------------------------------------------------------------------------------------------

|(3) | Includes only six months of activity through June 30, 2008.
|--- | -----------------------------------------------------------



26



---

##### Table of Contents

The following table summarizes the purchased receivable revenues and amortization rates by year of
purchase for the three and six months ended June 30, 2008 and 2007, respectively.



|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|---------------- |  | -------------------------------- | ----------- | ------- | - | ---------------- |  | ---- | ---------------- |  | ----- | -------------- |  | - | --------------------- | - |  | - | ----------
|                 |  | Three months ended June 30, 2008
|Year of Purchase |  | Collections                      |             | Revenue |   | AmortizationRate |  |      | MonthlyYield (1) |  |       | NetImpairments |  |   | Zero BasisCollections
|2002 and prior   |  | $                                | 12,784,399  |         | $ | 12,101,312       |  | N/M  | %                |  | N/M   | %              |  | $ |                      |   |  | $ | 11,609,421
|2003             |  |                                  | 10,546,373  |         |   | 9,274,480        |  | 12.1 |                  |  | 34.90 |                |  |   | (537,150              | ) |  |   | 5,902,566 
|2004             |  |                                  | 8,920,506   |         |   | 6,239,920        |  | 30.0 |                  |  | 7.47  |                |  |   | 637,317               |   |  |   | 819,045   
|2005             |  |                                  | 10,082,486  |         |   | 2,547,583        |  | 74.7 |                  |  | 2.02  |                |  |   | 2,513,000             |   |  |   | 7,892     
|2006             |  |                                  | 21,342,389  |         |   | 11,672,311       |  | 45.3 |                  |  | 4.72  |                |  |   | 2,356,000             |   |  |   | 1,898,018 
|2007             |  |                                  | 24,315,224  |         |   | 11,120,941       |  | 54.3 |                  |  | 2.80  |                |  |   |                      |   |  |   | 35,260    
|2008             |  |                                  | 7,201,366   |         |   | 3,252,132        |  | 54.8 |                  |  | 2.64  |                |  |   |                      |   |  |   | 27,779    
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 95,192,743  |         | $ | 56,208,679       |  | 41.0 |                  |  | 5.58  |                |  | $ | 4,969,167             |   |  | $ | 20,299,981
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|                 | 
|                 |  | Three months ended June 30, 2007
|Year of Purchase |  | Collections                      |             | Revenue |   | AmortizationRate |  |      | MonthlyYield (1) |  |       | NetImpairments |  |   | Zero BasisCollections
|2001 and prior   |  | $                                | 10,350,761  |         | $ | 10,448,031       |  | N/M  | %                |  | N/M   | %              |  | $ |                      |   |  | $ | 10,349,860
|2002             |  |                                  | 10,415,239  |         |   | 7,617,746        |  | 26.9 |                  |  | 38.27 |                |  |   | (7,700                | ) |  |   | 5,302,384 
|2003             |  |                                  | 15,650,934  |         |   | 10,123,237       |  | 35.3 |                  |  | 15.36 |                |  |   | 861,000               |   |  |   | 3,360,172 
|2004             |  |                                  | 12,820,784  |         |   | 7,470,809        |  | 41.7 |                  |  | 5.79  |                |  |   | 2,544,800             |   |  |   | 851,464   
|2005             |  |                                  | 13,733,997  |         |   | 8,952,035        |  | 34.8 |                  |  | 4.17  |                |  |   | 1,745,000             |   |  |   | 19,692    
|2006             |  |                                  | 26,210,165  |         |   | 17,622,050       |  | 32.8 |                  |  | 5.00  |                |  |   |                      |   |  |   | 1,962,401 
|2007             |  |                                  | 6,250,141   |         |   | 3,280,990        |  | 47.5 |                  |  | 2.38  |                |  |   |                      |   |  |   |          
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 95,432,021  |         | $ | 65,514,898       |  | 31.3 |                  |  | 7.13  |                |  | $ | 5,143,100             |   |  | $ | 21,845,973
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|                 | 
|                 |  | Six months ended June 30, 2008  
|Year of Purchase |  | Collections                      |             | Revenue |   | AmortizationRate |  |      | MonthlyYield (1) |  |       | NetImpairments |  |   | Zero BasisCollections
|2002 and prior   |  | $                                | 27,359,596  |         | $ | 26,288,995       |  | N/M  | %                |  | N/M   | %              |  | $ | (550,000              | ) |  | $ | 24,688,531
|2003             |  |                                  | 22,443,394  |         |   | 19,419,777       |  | 13.5 |                  |  | 33.26 |                |  |   | (1,018,200            | ) |  |   | 12,099,253
|2004             |  |                                  | 18,514,737  |         |   | 12,819,248       |  | 30.8 |                  |  | 7.28  |                |  |   | 1,687,664             |   |  |   | 1,794,244 
|2005             |  |                                  | 20,694,464  |         |   | 8,307,417        |  | 59.9 |                  |  | 3.04  |                |  |   | 2,605,986             |   |  |   | 44,299    
|2006             |  |                                  | 46,230,295  |         |   | 27,206,224       |  | 41.2 |                  |  | 5.17  |                |  |   | 2,448,000             |   |  |   | 3,856,965 
|2007             |  |                                  | 51,663,171  |         |   | 22,322,914       |  | 56.8 |                  |  | 2.64  |                |  |   | 180,000               |   |  |   | 35,260    
|2008             |  |                                  | 8,551,367   |         |   | 3,566,792        |  | 58.3 |                  |  | 2.58  |                |  |   |                      |   |  |   | 27,779    
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 195,457,024 |         | $ | 119,931,367      |  | 38.6 |                  |  | 5.92  |                |  | $ | 5,353,450             |   |  | $ | 42,546,331
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|                 | 
|                 |  | Six months ended June 30, 2007  
|Year of Purchase |  | Collections                      |             | Revenue |   | AmortizationRate |  |      | MonthlyYield (1) |  |       | NetImpairments |  |   | Zero BasisCollections
|2001 and prior   |  | $                                | 20,681,711  |         | $ | 20,692,285       |  | N/M  | %                |  | N/M   | %              |  | $ |                      |   |  | $ | 20,515,823
|2002             |  |                                  | 22,432,000  |         |   | 15,560,961       |  | 30.6 |                  |  | 30.8  |                |  |   | 209,100               |   |  |   | 9,856,188 
|2003             |  |                                  | 32,430,994  |         |   | 21,772,454       |  | 32.9 |                  |  | 14.66 |                |  |   | 1,624,300             |   |  |   | 6,036,566 
|2004             |  |                                  | 26,855,142  |         |   | 16,650,174       |  | 38.0 |                  |  | 6.07  |                |  |   | 4,475,800             |   |  |   | 1,619,898 
|2005             |  |                                  | 28,474,658  |         |   | 19,388,065       |  | 31.9 |                  |  | 4.38  |                |  |   | 2,679,000             |   |  |   | 30,229    
|2006             |  |                                  | 52,723,217  |         |   | 34,002,699       |  | 35.5 |                  |  | 4.61  |                |  |   | 628,000               |   |  |   | 2,243,741 
|2007             |  |                                  | 7,687,649   |         |   | 4,230,294        |  | 45.0 |                  |  | 2.36  |                |  |   |                      |   |  |   |          
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           
|Totals           |  | $                                | 191,285,371 |         | $ | 132,296,932      |  | 30.8 |                  |  | 7.21  |                |  | $ | 9,616,200             |   |  | $ | 40,302,445
|                 |  |                                  |             |         |   |                  |  |      |                  |  |       |                |  |   |                       |   |  |   |           



|(1) | The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly carrying values
of the purchased receivables for the period presented.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27



---

##### Table of Contents

Account Representative Productivity

We measure traditional call center account representative tenure by two major categories, those with less than one year of experience and those with one
or more years of experience. The following table displays our results.

Account Representatives by Experience



|                                   |  |                            |  |                          |  |                        |  |          |  |          |  |         
|---------------------------------- |  | -------------------------- |  | ------------------------ |  | ---------------------- |  | -------- |  | -------- |  | --------
|                                   |  | Three months endedJune 30, |  | Six months endedJune 30, |  | Year endedDecember 31,
|                                   |  | 2008                       |  | 2007 (3)                 |  | 2008                   |  | 2007 (3) |  | 2007 (3) |  | 2006 (4)
|Number of account representatives: |  |                            |  |                          |  |                        |  |          |  |          |  |         
|One year or more (1)               |  | 496                        |  | 584                      |  | 495                    |  | 604      |  | 558      |  | 573     
|Less than one year (2)             |  | 443                        |  | 346                      |  | 425                    |  | 322      |  | 356      |  | 399     
|                                   |  |                            |  |                          |  |                        |  |          |  |          |  |         
|Total account representatives      |  | 939                        |  | 930                      |  | 920                    |  | 926      |  | 914      |  | 972     
|                                   |  |                            |  |                          |  |                        |  |          |  |          |  |         



|(1) | Based on number of average traditional call center Full Time Equivalent (FTE) account representatives and supervisors with one or more years of service.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based on number of average traditional call center FTE account representatives and supervisors with less than one year of service, including new associates in training.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Certain account representatives have been reclassified to make the 2007 disclosures comparable to the 2008 disclosures.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(4) | Excludes PARCs FTE account representatives for periods prior to January 1, 2007.
|--- | ---------------------------------------------------------------------------------

The following table displays our account representative productivity.

Collection Averages by Experience
(1)



|                     |  |                            |  |                          |  |                        |  |          |  |          |  |         
|-------------------- |  | -------------------------- |  | ------------------------ |  | ---------------------- |  | -------- |  | -------- |  | --------
|                     |  | Three months endedJune 30, |  | Six months endedJune 30, |  | Year endedDecember 31,
|                     |  | 2008                       |  | 2007 (2)                 |  | 2008                   |  | 2007 (2) |  | 2007 (2) |  | 2006 (3)
|Collection averages: |  |                            |  |                          |  |                        |  |          |  |          |  |         
|Overall average      |  | 45,538                     |  | 49,458                   |  | 99,270                 |  | 103,384  |  | 193,000  |  | 164,932 



|(1) | Overall collection averages are not available by account representatives.
|--- | -------------------------------------------------------------------------

|(2) | The overall collection average has been reclassified to make the 2007 disclosure comparable to the 2008 disclosure.
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | Excludes PARCs FTE account representatives for periods prior to January 1, 2007.
|--- | ---------------------------------------------------------------------------------



28



---

##### Table of Contents

Cash Collections

The following tables provide further detailed vintage collection analysis on an annual and a cumulative basis.

Historical Collections (1)



|                                                           |           |                        |         |                            |   |        |                         |  |      |        |   |      |   |        |      |  |   |        |   |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------- | --------- | ---------------------- | ------- | -------------------------- | - | ------ | ----------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Purchase Period                                            |           | Purchase               |         | Year Ended December 31,    |   |        | SixMonthsEnded June 30, | 
|                                                           | Price (3) |                        | 1998    |                            |   | 1999   |                         |  | 2000 |        |   | 2001 |   |        | 2002 |  |   | 2003   |   |  | 2004 |         |   | 2005 |   |         | 2006 |  |   | 2007    |   |  | 2008 |        
|                                                           |           | (dollars in thousands) |        
|Pre-1998                                                   |           |                        |         |                            | $ | 10,603 |                         |  | $    | 10,066 |   |      | $ | 8,734  |      |  | $ | 6,170  |   |  | $    | 4,544   |   |      | $ | 3,390   |      |  | $ | 2,808   |   |  | $    | 2,612   |   |  | $ | 2,008   |   |  | $ | 1,586   |   |  | $ | 729     |  
|1998                                                       |           | $                      | 16,411  |                            |   | 4,835  |                         |  |      | 15,220 |   |      |   | 15,045 |      |  |   | 12,962 |   |  |      | 11,021  |   |      |   | 7,987   |      |  |   | 5,583   |   |  |      | 4,653   |   |  |   | 3,352   |   |  |   | 2,619   |   |  |   | 1,114   |  
|1999                                                       |           |                        | 12,924  |                            |   |       |                         |  |      | 3,761  |   |      |   | 11,331 |      |  |   | 10,862 |   |  |      | 9,750   |   |      |   | 8,278   |      |  |   | 6,675   |   |  |      | 5,022   |   |  |   | 3,935   |   |  |   | 2,949   |   |  |   | 1,108   |  
|2000                                                       |           |                        | 20,592  |                            |   |       |                         |  |      |       |   |      |   | 8,896  |      |  |   | 23,444 |   |  |      | 22,559  |   |      |   | 20,318  |      |  |   | 17,196  |   |  |      | 14,062  |   |  |   | 10,603  |   |  |   | 7,410   |   |  |   | 2,937   |  
|2001                                                       |           |                        | 43,030  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   | 17,630 |   |  |      | 50,327  |   |      |   | 50,967  |      |  |   | 45,713  |   |  |      | 39,865  |   |  |   | 30,472  |   |  |   | 21,714  |   |  |   | 7,553   |  
|2002                                                       |           |                        | 72,255  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      | 22,339  |   |      |   | 70,813  |      |  |   | 72,024  |   |  |      | 67,649  |   |  |   | 55,373  |   |  |   | 39,839  |   |  |   | 13,920  |  
|2003                                                       |           |                        | 87,152  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   | 36,067  |      |  |   | 94,564  |   |  |      | 94,234  |   |  |   | 79,423  |   |  |   | 58,359  |   |  |   | 22,443  |  
|2004                                                       |           |                        | 86,549  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   | 23,365  |   |  |      | 68,354  |   |  |   | 62,673  |   |  |   | 48,093  |   |  |   | 18,515  |  
|2005                                                       |           |                        | 100,768 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      | 23,459  |   |  |   | 60,280  |   |  |   | 50,811  |   |  |   | 20,694  |  
|2006 (2)                                                   |           |                        | 142,267 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 32,751  |   |  |   | 101,529 |   |  |   | 46,230  |  
|2007                                                       |           |                        | 169,805 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   | 36,269  |   |  |   | 51,663  |  
|2008                                                       |           |                        | 87,610  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |   |  |   | 8,551   |  
|                                                           |           |                        |         |                            |   |        |                         |  |      |        |   |      |   |        |      |  |   |        |   |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total                                                      |           |                        |         |                            | $ | 15,438 |                         |  | $    | 29,047 |   |      | $ | 44,006 |      |  | $ | 71,068 |   |  | $    | 120,540 |   |      | $ | 197,820 |      |  | $ | 267,928 |   |  | $    | 319,910 |   |  | $ | 340,870 |   |  | $ | 371,178 |   |  | $ | 195,457 |  
|                                                           |           |                        |         |                            |   |        |                         |  |      |        |   |      |   |        |      |  |   |        |   |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|                                                          
|Cumulative Collections (1)                                 |          
|Purchase Period                                            |           | Purchase               |         | Total Through December 31, |   |        | TotalThroughJune 30,    | 
|                                                           | Price (3) |                        | 1998    |                            |   | 1999   |                         |  | 2000 |        |   | 2001 |   |        | 2002 |  |   | 2003   |   |  | 2004 |         |   | 2005 |   |         | 2006 |  |   | 2007    |   |  | 2008 |        
|                                                           |           | (dollars in thousands) |        
|1998                                                       |           | $                      | 16,411  |                            | $ | 4,835  |                         |  | $    | 20,055 |   |      | $ | 35,100 |      |  | $ | 48,062 |   |  | $    | 59,083  |   |      | $ | 67,070  |      |  | $ | 72,653  |   |  | $    | 77,306  |   |  | $ | 80,658  |   |  | $ | 83,277  |   |  | $ | 84,391  |  
|1999                                                       |           |                        | 12,924  |                            |   |       |                         |  |      | 3,761  |   |      |   | 15,092 |      |  |   | 25,954 |   |  |      | 35,704  |   |      |   | 43,982  |      |  |   | 50,657  |   |  |      | 55,679  |   |  |   | 59,614  |   |  |   | 62,563  |   |  |   | 63,671  |  
|2000                                                       |           |                        | 20,592  |                            |   |       |                         |  |      |       |   |      |   | 8,896  |      |  |   | 32,340 |   |  |      | 54,899  |   |      |   | 75,217  |      |  |   | 92,413  |   |  |      | 106,475 |   |  |   | 117,078 |   |  |   | 124,488 |   |  |   | 127,425 |  
|2001                                                       |           |                        | 43,030  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   | 17,630 |   |  |      | 67,957  |   |      |   | 118,924 |      |  |   | 164,637 |   |  |      | 204,502 |   |  |   | 234,974 |   |  |   | 256,688 |   |  |   | 264,241 |  
|2002                                                       |           |                        | 72,255  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      | 22,339  |   |      |   | 93,152  |      |  |   | 165,176 |   |  |      | 232,825 |   |  |   | 288,198 |   |  |   | 328,037 |   |  |   | 341,957 |  
|2003                                                       |           |                        | 87,152  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   | 36,067  |      |  |   | 130,631 |   |  |      | 224,865 |   |  |   | 304,288 |   |  |   | 362,647 |   |  |   | 385,090 |  
|2004                                                       |           |                        | 86,549  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   | 23,365  |   |  |      | 91,719  |   |  |   | 154,392 |   |  |   | 202,485 |   |  |   | 221,000 |  
|2005                                                       |           |                        | 100,768 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      | 23,459  |   |  |   | 83,739  |   |  |   | 134,550 |   |  |   | 155,244 |  
|2006 (2)                                                   |           |                        | 142,267 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 32,751  |   |  |   | 134,280 |   |  |   | 180,510 |  
|2007                                                       |           |                        | 169,805 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   | 36,269  |   |  |   | 87,932  |  
|2008                                                       |           |                        | 87,610  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |   |  |   | 8,551   |  
|                                                          
|Cumulative Collections as Percentage of Purchase Price (1) |          
|Purchase Period                                            |           | Purchase               |         | Total Through December 31, |   |        | TotalThroughJune 30,    | 
|                                                           | Price (3) |                        | 1998    |                            |   | 1999   |                         |  | 2000 |        |   | 2001 |   |        | 2002 |  |   | 2003   |   |  | 2004 |         |   | 2005 |   |         | 2006 |  |   | 2007    |   |  | 2008 |        
|1998                                                       |           | $                      | 16,411  |                            |   | 29     | %                       |  |      | 122    | % |      |   | 214    | %    |  |   | 293    | % |  |      | 360     | % |      |   | 409     | %    |  |   | 443     | % |  |      | 471     | % |  |   | 491     | % |  |   | 507     | % |  |   | 514     | %
|1999                                                       |           |                        | 12,924  |                            |   |       |                         |  |      | 29     |   |      |   | 117    |      |  |   | 201    |   |  |      | 276     |   |      |   | 340     |      |  |   | 392     |   |  |      | 431     |   |  |   | 461     |   |  |   | 484     |   |  |   | 493     |  
|2000                                                       |           |                        | 20,592  |                            |   |       |                         |  |      |       |   |      |   | 43     |      |  |   | 157    |   |  |      | 267     |   |      |   | 365     |      |  |   | 449     |   |  |      | 517     |   |  |   | 569     |   |  |   | 605     |   |  |   | 619     |  
|2001                                                       |           |                        | 43,030  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   | 41     |   |  |      | 158     |   |      |   | 276     |      |  |   | 383     |   |  |      | 475     |   |  |   | 546     |   |  |   | 597     |   |  |   | 614     |  
|2002                                                       |           |                        | 72,255  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      | 31      |   |      |   | 129     |      |  |   | 229     |   |  |      | 322     |   |  |   | 399     |   |  |   | 454     |   |  |   | 473     |  
|2003                                                       |           |                        | 87,152  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   | 41      |      |  |   | 150     |   |  |      | 258     |   |  |   | 349     |   |  |   | 416     |   |  |   | 442     |  
|2004                                                       |           |                        | 86,549  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   | 27      |   |  |      | 106     |   |  |   | 178     |   |  |   | 234     |   |  |   | 255     |  
|2005                                                       |           |                        | 100,768 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      | 23      |   |  |   | 83      |   |  |   | 134     |   |  |   | 154     |  
|2006 (2)                                                   |           |                        | 142,267 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 23      |   |  |   | 94      |   |  |   | 127     |  
|2007                                                       |           |                        | 169,805 |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   | 21      |   |  |   | 52      |  
|2008                                                       |           |                        | 87,610  |                            |   |       |                         |  |      |       |   |      |   |       |      |  |   |       |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |   |  |   |        |   |  |   | 10      |  



|(1) | Does not include proceeds from sales of any receivables.
|--- | --------------------------------------------------------

|(2) | Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.
|--- | --------------------------------------------------------------------------------------------

|(3) | Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also referred to
as buybacks) less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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Seasonality

The success of our business depends on our ability to collect on our purchased portfolios of charged-off consumer receivables. Collections within portfolios tend to be seasonally higher in the first and second quarters of the year due to
consumers receipt of tax refunds and other factors. Conversely, collections within portfolios tend to be lower in the third and fourth quarters of the year due to consumers spending in connection with summer vacations, the holiday season
and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by SOP 03-3. In addition, our operating results may be affected to a lesser extent by the
timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and integrating these receivables into our system. Consequently, income and margins may fluctuate from quarter to quarter.

Below is a table that illustrates our quarterly cash collections from January 1, 2004 through June 30, 2008:

Cash Collections



|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|---------------------- |  | ---- | ----------- | ---- | - | ----------- |  | ---- | ----------- | ---- | - | ----------- |  | - | -----------
|Quarter                |  | 2008 |             | 2007 |   | 2006        |  | 2005 |             | 2004
|First                  |  | $    | 100,264,281 |      | $ | 95,853,350  |  | $    | 89,389,858  |      | $ | 80,397,640  |  | $ | 65,196,055 
|Second                 |  |      | 95,192,743  |      |   | 95,432,021  |  |      | 89,609,982  |      |   | 84,862,856  |  |   | 67,566,031 
|Third                  |  |      |            |      |   | 90,748,442  |  |      | 80,914,791  |      |   | 78,159,364  |  |   | 66,825,822 
|Fourth                 |  |      |            |      |   | 89,144,650  |  |      | 80,955,115  |      |   | 76,490,350  |  |   | 68,339,797 
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|Total cash collections |  | $    | 195,457,024 |      | $ | 371,178,463 |  | $    | 340,869,746 |      | $ | 319,910,210 |  | $ | 267,927,705
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            

Below is a table that illustrates the cash collections percentages by source of our total cash collections:



|                        |  |                                    |            |   |                                  |   |   |      |            |  |          |   |  |   |             |  |       |   |   |   |             |  |       |  
|----------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | - | ---- | ---------- |  | -------- | - |  | - | ----------- |  | ----- | - | - | - | ----------- |  | ----- | -
|                        |  | For the three months endedJune 30, |            |   | For the six months endedJune 30, |  
|                        |  | 2008                               |            |   | 2007 (1)                         |   |   | 2008 |            |  | 2007 (1) |  
|                        |  | $                                  |            | % |                                  |   | $ |      | %          |  |          | $ |  | % |             |  | $     |   | % |  
|Traditional collections |  | $                                  | 42,231,400 |   | 44.4                             | % |   | $    | 44,980,987 |  | 47.1     | % |  | $ | 89,760,339  |  | 45.9  | % |   | $ | 93,305,046  |  | 48.8  | %
|Legal collections       |  |                                    | 39,873,484 |   | 41.9                             |   |   |      | 37,845,196 |  | 39.7     |   |  |   | 78,051,011  |  | 39.9  |   |   |   | 73,720,743  |  | 38.5  |  
|Other collections       |  |                                    | 13,087,859 |   | 13.7                             |   |   |      | 12,605,838 |  | 13.2     |   |  |   | 27,645,674  |  | 14.2  |   |   |   | 24,259,583  |  | 12.7  |  
|                        |  |                                    |            |   |                                  |   |   |      |            |  |          |   |  |   |             |  |       |   |   |   |             |  |       |  
|Total cash collections  |  | $                                  | 95,192,743 |   | 100.0                            | % |   | $    | 95,432,021 |  | 100.0    | % |  | $ | 195,457,024 |  | 100.0 | % |   | $ | 191,285,372 |  | 100.0 | %
|                        |  |                                    |            |   |                                  |   |   |      |            |  |          |   |  |   |             |  |       |   |   |   |             |  |       |  



|(1) | Certain cash collections have been reclassified to make the 2007 disclosures comparable to the 2008 disclosures.
|--- | ----------------------------------------------------------------------------------------------------------------

The following chart categorizes our purchased receivable portfolios acquired during January 1, 1998 through June 30, 2008 and into major asset
types, as of June 30, 2008:



|                               |  |                                         |            |   |       |   |                |        |   |       |  
|------------------------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Asset Type                     |  | Face Value ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|                               |  | (in thousands)                          |            |   |       |   |                |        |   |      
|Visa®/MasterCard®/Discover®    |  | $                                       | 16,875,012 |   | 49.0  | % |                | 7,670  |   | 24.9  | %
|Private Label Credit Cards     |  |                                         | 4,682,210  |   | 13.6  |   |                | 6,546  |   | 21.2  |  
|Telecommunications/Utility/Gas |  |                                         | 2,945,351  |   | 8.5   |   |                | 7,699  |   | 25.0  |  
|Health Club                    |  |                                         | 1,821,334  |   | 5.3   |   |                | 1,732  |   | 5.6   |  
|Auto Deficiency                |  |                                         | 1,355,983  |   | 3.9   |   |                | 241    |   | 0.8   |  
|Installment Loans              |  |                                         | 1,231,514  |   | 3.6   |   |                | 356    |   | 1.1   |  
|Wireless Telecommunications    |  |                                         | 719,181    |   | 2.1   |   |                | 1,727  |   | 5.6   |  
|Other (1)                      |  |                                         | 4,842,343  |   | 14.0  |   |                | 4,864  |   | 15.8  |  
|                               |  |                                         |            |   |       |   |                |        |   |       |  
|Total                          |  | $                                       | 34,472,928 |   | 100.0 | % |                | 30,835 |   | 100.0 | %
|                               |  |                                         |            |   |       |   |                |        |   |       |  



|(1) | Other includes charged-off receivables of several debt types, including student loan, mobile home deficiency and retail mail order. This excludes the purchase of a
single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8 million accounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional
accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



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The age of a charged-off consumer receivables portfolio, or the time since an account has been
charged-off, is an important factor in determining the price at which we will offer to purchase a receivables portfolio. Generally, there is an inverse relationship between the age of a portfolio and the price at which we will purchase the
portfolio. This relationship is due to the fact that older receivables are typically more difficult to collect. The accounts receivable management industry places receivables into the following categories depending on the number of collection
agencies that have previously attempted to collect on the receivables and the age of the receivables:



| |  |  | Fresh accounts are typically 120 to 270 days past due, have been charged-off by the credit originator and are either being sold prior to any post charged-off
collection activity or are placed with a third party collector for the first time. These accounts typically sell for the highest purchase price.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Primary accounts are typically 270 to 360 days past due, have been previously placed with one-third party collector and typically receive a lower purchase price.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Secondary and tertiary accounts are typically more than 360 days past due, have been placed with two or three third party collectors and receive even lower purchase
prices.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We specialize in the primary, secondary and tertiary markets, but we will purchase accounts at any point in the
delinquency cycle. We deploy our capital within these markets based upon the relative values of the available debt portfolios.

The
following chart categorizes our purchased receivable portfolios acquired during January 1, 1998 through June 30, 2008 into major account types as of June 30, 2008:



|             |  |                                         |            |   |       |   |                |        |   |       |  
|------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Account Type |  | Face Value ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|             |  | (in thousands)                          |            |   |       |   |                |        |   |      
|Fresh        |  | $                                       | 2,214,685  |   | 6.4   | % |                | 1,227  |   | 4.0   | %
|Primary      |  |                                         | 4,930,002  |   | 14.3  |   |                | 4,819  |   | 15.6  |  
|Secondary    |  |                                         | 7,072,437  |   | 20.5  |   |                | 6,812  |   | 22.1  |  
|Tertiary (1) |  |                                         | 15,854,038 |   | 46.0  |   |                | 14,847 |   | 48.1  |  
|Other        |  |                                         | 4,401,766  |   | 12.8  |   |                | 3,130  |   | 10.2  |  
|             |  |                                         |            |   |       |   |                |        |   |       |  
|Total        |  | $                                       | 34,472,928 |   | 100.0 | % |                | 30,835 |   | 100.0 | %
|             |  |                                         |            |   |       |   |                |        |   |       |  



|(1) | Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), and consisting of approximately
3.8 million accounts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional
accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also review the
geographic distribution of accounts within a portfolio because collection laws differ from state to state. The following chart illustrates our purchased receivable portfolios acquired during January 1, 1998 through June 30, 2008 based on
geographic location of debtor, as of June 30, 2008:



31



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##### Table of Contents

|                    |                |                                            |            |   |       |   |                |        |   |       |  
|------------------- | -------------- | ------------------------------------------ | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Geographic Location |                | Face Value ofCharged-offReceivables (3)(4) |            | % |       |   | No. ofAccounts |        | % |      
|                    | (in thousands) |                                            |            |   |       |   |                |        |  
|Texas (1)           |                | $                                          | 5,043,365  |   | 14.6  | % |                | 4,832  |   | 15.7  | %
|California          |                |                                            | 3,916,618  |   | 11.4  |   |                | 3,589  |   | 11.6  |  
|Florida (1)         |                |                                            | 3,453,793  |   | 10.0  |   |                | 2,244  |   | 7.3   |  
|Michigan (1)        |                |                                            | 2,067,411  |   | 6.0   |   |                | 2,576  |   | 8.4   |  
|New York            |                |                                            | 2,002,406  |   | 5.8   |   |                | 1,319  |   | 4.3   |  
|Ohio (1)            |                |                                            | 1,836,782  |   | 5.3   |   |                | 2,369  |   | 7.7   |  
|Illinois (1)        |                |                                            | 1,441,235  |   | 4.2   |   |                | 1,717  |   | 5.6   |  
|Pennsylvania        |                |                                            | 1,236,985  |   | 3.6   |   |                | 966    |   | 3.1   |  
|New Jersey (1)      |                |                                            | 1,079,852  |   | 3.1   |   |                | 879    |   | 2.8   |  
|North Carolina      |                |                                            | 1,015,128  |   | 2.9   |   |                | 706    |   | 2.3   |  
|Georgia             |                |                                            | 951,887    |   | 2.8   |   |                | 805    |   | 2.6   |  
|Other (2)           |                |                                            | 10,427,466 |   | 30.3  |   |                | 8,833  |   | 28.6  |  
|                    |                |                                            |            |   |       |   |                |        |   |       |  
|Total               |                | $                                          | 34,472,928 |   | 100.0 | % |                | 30,835 |   | 100.0 | %
|                    |                |                                            |            |   |       |   |                |        |   |       |  



|(1) | Collection site(s) located in this state.
|--- | -----------------------------------------

|(2) | Each state included in Other represents under 2.0% individually of the face value of total charged-off consumer receivables.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional
accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately
3.8 million accounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Historically, our primary sources of cash have been from operations and bank borrowings. We have traditionally used cash for acquisitions of purchased
receivables, repayment of bank borrowings, purchasing property and equipment and working capital to support growth. During the six months ended June 30, 2008, we had repayments of $58.8 million to reduce our outstanding Revolving Credit
Facility and Term Loan Facility balances while having $57.0 million in borrowings against our Revolving Credit Facility. In addition, we entered into a new agreement with a third party collecting on our behalf. Under this agreement, we will receive
a total cash advance of $7.0 million through November 2009. We received $2.5 million in the first half of 2008, and incurred approximately $2.4 million in court cost expenses, which were offset with a portion of the cash advance. A liability equal
to the unused cash advance is included in accrued liabilities on the consolidated statements of financial position. The agreement contains performance conditions for both parties and we may be required to refund a portion of the cash advance in
certain situations.

Borrowings

We maintain a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, that originated on June 5, 2007 and was amended on March 10, 2008. Under the
terms of the Amended New Credit Agreement, we have a five-year $100 million Revolving Credit Facility and a six-year $150 million Term Loan Facility. The Amended New Credit Facilities bear interest at prime or up to 125 basis points over
prime depending upon our liquidity, as defined in the Amended New Credit Agreement. Alternately, at our discretion, we may borrow by entering into one, two, three, six or twelve-month LIBOR contracts at rates between 150 to 250 basis points over the
respective LIBOR rates, depending on our liquidity. Our Revolving Credit Facility includes an accordion loan feature that allows us to request a $25.0 million increase as well as sublimits for $10.0 million of letters of credit and for $10.0 million
of swingline loans. The Amended New Credit Agreement is secured by a first priority lien on all of our assets. The Amended New Credit Agreement also contains certain covenants and restrictions that we must comply with, which as of June 30, 2008
were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June 29, 2009, (ii) 1.125 to 1.0 at any time on or after
June 30, 2009 and on or before December 30, 2010 or (iii) 1.0 to 1.0 at any time thereafter;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth cannot exceed (i) 3.0 to 1.0 at any time on or before September 29, 2008,
(ii) 2.75 to 1.0 at any time on or after September 30, 2008 and on or before December 30, 2008, (iii) 2.5 to 1.0 at any time on or after December 31, 2008 and on or before December 30, 2009, (iv) 2.25 to 1.0 at any
time on or after December 31, 2009 and on or before December 30, 2010, (v) 2.0 to 1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or (vi) 1.5 to 1.0 to any time thereafter; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth must equal or exceed $80.0 million plus 50% of positive consolidated net income for three consecutive fiscal quarters ending
December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Amended New Credit Agreement contains a provision that requires us to repay Excess Cash Flow, as defined, to reduce the indebtedness outstanding
under our Amended New Credit Agreement. The annual repayment of our Excess Cash Flow is effective with the issuance of our audited consolidated financial statements for fiscal year 2008. The repayment provisions are:



| |  |  | 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such
fiscal year; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------

Commitment fees on the unused portion of the New Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount equal to a
margin of 0.25% to 0.50%, depending on our liquidity, on the average amount available on the New Revolving Credit Facility.

The Amended
New Credit Agreement requires us to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan.

We had $189.5 million principal balance outstanding on our Amended New Credit Facilities at June 30, 2008. We have an interest rate swap agreement
that hedges a portion of the interest rate expense on the Term Loan Facility. We believe we are in compliance with all terms of the Amended New Credit Agreement as of June 30, 2008.

Cash Flows

For the six months
ended June 30, 2008, we invested $85.0 million in purchased receivables, net of buybacks, funded by a combination of internal cash flow and the Revolving Credit Facility. Our cash balance decreased from $10.5 million at December 31, 2007
to $9.2 million as of June 30, 2008.

Our operating activities provided cash of $20.2 million and $32.7 million for the six months
ended June 30, 2008 and 2007, respectively. Cash provided by operating activities for the six months ended June 30, 2008 and 2007 was generated primarily from net income earned through cash collections as adjusted for the timing of
payments in income taxes payable, accounts payable and accrued liabilities as of June 30, 2008 and 2007 compared to December 31, 2007 and 2006, respectively.

Investing activities used cash of $19.1 million and $24.2 million for the six months ended June 30, 2008 and 2007, respectively. Cash used by investing activities was primarily due to acquisitions of purchased
receivables, net of cash collections applied to principal.

Financing activities used cash of $2.4 million and provided cash of $66.2
million for the six months ended June 30, 2008 and 2007, respectively. Cash used by financing activities for the six months ended June of 2008 was primarily due to repayments on our Revolving Credit Facility and Term Loan Facility of $58.8
million net of borrowings under the Revolving Credit Facility of $57.0 million. In addition, cash used by financing activities for the six months ended June of 2008 was due to payment of credit facility charges of $0.7 million associated with the
amendment of the New Credit Agreement. Cash provided by financing activities for the first six months of 2007 was primarily due to borrowings of



33



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##### Table of Contents

$199.0 million under our New Credit Facilities and former credit agreement to fund the recapitalization transactions ($150.0 million) and investments in
purchased receivables ($49.0 million). Cash used in financing activities include repayments of $54.0 million on our former credit agreement and capital lease obligations as well as payments of $75.0 million for our repurchase of 4,000,000 shares in
accordance with the Recapitalization Plan. Also, the Company exercised its right to buy its shares from former employees for $15.00 per share, or $0.7 million.

We believe that cash generated from operations combined with borrowing available under our Amended New Credit Facilities, will be sufficient to fund our operations for the next twelve months, although no assurance can
be given in this regard. In the future, if we need additional capital for investment in purchased receivables, working capital or to grow our business or acquire other businesses, we may seek to sell additional equity or debt securities or we may
seek to increase the availability under our Revolving Credit Facility.

Future Contractual Cash Obligations

The following table summarizes our future contractual cash obligations as of June 30, 2008:



|                                               |  |                          |            |      |   |            |  |      |           |      |   |            |  |   |            |  |   |            
|---------------------------------------------- |  | ------------------------ | ---------- | ---- | - | ---------- |  | ---- | --------- | ---- | - | ---------- |  | - | ---------- |  | - | -----------
|                                               |  | Year Ending December 31, |            |     
|                                               |  | 2008(3)                  |            | 2009 |   | 2010       |  | 2011 |           | 2012 |   | Thereafter
|Capital lease obligations                      |  | $                        | 4,475      |      | $ |           |  | $    |          |      | $ |           |  | $ |           |  | $ |           
|Operating lease obligations                    |  |                          | 2,921,961  |      |   | 5,287,062  |  |      | 4,081,043 |      |   | 3,824,311  |  |   | 3,511,471  |  |   | 10,852,626 
|Purchase commitment (1)                        |  |                          | 1,604,960  |      |   |           |  |      |          |      |   |           |  |   |           |  |   |           
|Purchased receivables (2)                      |  |                          | 23,786,535 |      |   | 4,321,300  |  |      |          |      |   |           |  |   |           |  |   |           
|Revolving credit (3)                           |  |                          |           |      |   |           |  |      |          |      |   |           |  |   | 41,000,000 |  |   |           
|Term loan (4)                                  |  |                          | 750,000    |      |   | 1,500,000  |  |      | 1,500,000 |      |   | 1,500,000  |  |   | 1,500,000  |  |   | 141,750,000
|Contractual interest on derivative instruments |  |                          | 2,869,771  |      |   | 4,696,927  |  |      | 3,444,413 |      |   | 2,198,781  |  |   | 946,267    |  |   |           
|                                               |  |                          |            |      |   |            |  |      |           |      |   |            |  |   |            |  |   |            
|Total                                          |  | $                        | 31,937,702 |      | $ | 15,805,289 |  | $    | 9,025,456 |      | $ | 7,523,092  |  | $ | 46,957,738 |  | $ | 152,602,626
|                                               |  |                          |            |      |   |            |  |      |           |      |   |            |  |   |            |  |   |            



|(1) | In 2007, we signed an agreement with a software provider and initiated a project to install a new collection platform. We have a contractual commitment to purchase $1.6 million in
additional software for the remainder of 2008. In addition, we expect to spend approximately $3.3 million over the next two years to fully implement this software. Costs will be capitalized in accordance with the guidance in SOP 98-1
Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This project is funded with cash from operations and borrowings on our Revolving Credit Facility.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We have ten forward flow contracts that have terms beyond June 30, 2008 with the last contract expiring in April 2009. In addition to the ten forward flow contracts, we have
two on-going forward flow contracts that have estimated monthly purchases of approximately $11,600.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | To the extent that a balance is outstanding on our Revolving Credit Facility, it would be due in June 2012 or earlier as defined in the Amended New Credit Agreement. Interest on our
Revolving Credit Facility is variable and is not included within the amount outstanding as of June 30, 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | To the extent that a balance is outstanding on our Term Loan Facility, it would be due in June 2013. The variable interest is not included within the amount outstanding as of June
30, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Policies

We utilize the interest method of accounting for our purchased receivables because we believe that the amounts and timing of cash collections for our
purchased receivables can be reasonably estimated. This belief is predicated on our historical results and our knowledge of the industry. The interest method is prescribed by the Accounting Standards Executive Committee Statement of Position 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3).

We adopted the provisions of
SOP 03-3 in January 2005 and apply SOP 03-3 to purchased receivables acquired after December 31, 2004. The provisions of SOP 03-3 that relate to decreases in expected cash flows amend previously followed guidance, the Accounting Standards
Executive Committee Practice Bulletin 6, Amortization of Discounts on Certain



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##### Table of Contents

Acquired Loans, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. We purchase pools of
homogenous accounts receivable and record each pool at its acquisition cost. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics. Risk characteristics of purchased
receivables are assumed to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. We therefore aggregate most pools purchased within each quarter. Pools purchased before 2005 may not be
aggregated with other pool purchases. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for recognition of revenue,
principal payments and impairments.

Each static pool of receivables is statistically modeled to determine its projected cash flows based
on historical cash collections for pools with similar characteristics. An internal rate of return (IRR) is calculated for each static pool of receivables based on the projected cash flows. The IRR is applied to the remaining balance of
each static pool of accounts to determine the revenue recognized. Each static pool is analyzed at least quarterly to assess the actual performance compared to the expected performance. To the extent there are differences in actual performance versus
expected performance, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. Effective January 2005, under SOP 03-3, if the revised cash flow estimates are less than the original
estimates, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method prescribed by SOP 03-3 is used when collections on a particular portfolio cannot be reasonably predicted. Under the cost
recovery method, no revenue is recognized until we have fully collected the cost of the portfolio.

Application of the interest method of
accounting requires the use of estimates, primarily estimated remaining collections, to calculate a projected IRR for each pool. These estimates are primarily based on historical cash collections. If future cash collections are materially different
in amount or timing than the remaining collections estimate, earnings could be affected, either positively or negatively. Higher collection amounts or cash collections that occur sooner than projected will have a favorable impact on yields and
revenues. Lower collection amounts or cash collections that occur later than projected will have an unfavorable impact and may result in an impairment being recorded.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our exposure to market risk relates to the interest rate risk with our Amended New Credit Facilities. We may periodically enter into interest rate swap agreements to modify the interest rate exposure associated with
our outstanding debt. The outstanding borrowings on our Amended New Credit Facilities were $189.5 million and $191.3 million as of June 30, 2008 and December 31, 2007, respectively. In September 2007, we entered into an amortizing interest
rate swap agreement whereby, on a quarterly basis, we swap variable rates equal to three-month LIBOR for fixed rates on the notional amount of $125 million. Every year thereafter, on the anniversary of the swap agreement the notional amount will
decrease by $25 million. The outstanding unhedged borrowings on our Amended New Credit Facilities were $64.5 million as of June 30, 2008, consisting of $41.0 million outstanding on the Revolving Credit Facility and $23.5 million
outstanding on the term loan facility. Interest rates on unhedged borrowings may be based on the Prime rate or LIBOR, at our discretion. Assuming a 200 basis point increase in interest rates, interest expense would have increased approximately $0.4
million on the unhedged borrowings for the six months ended June 30, 2008.

The hedged borrowings on our Amended New Credit Facilities
were $125.0 million at June 30, 2008. For the six months ended June 30, 2008, the swap was determined to be highly effective in hedging against fluctuations in variable interest rates associated with the underlying debt. Interest rates
have decreased since we entered into our swap agreement, reducing the fair value and resulting in a liability balance. Additional declines in interest rates will further reduce the fair value, while increasing interest rates will increase the fair
value. As of June 30, 2008, the Company does not have any fair value hedges.

Interest rate fluctuations do not have a material impact
on interest income.



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##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------

As of
the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and
procedures are effective to cause material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods
specified in the Commissions rules and forms.

There have been no changes in our internal controls over financial reporting that
occurred during our fiscal quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the ordinary course of our
business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using both our in-house attorneys and our network of third party law firms, against consumers and are occasionally countersued by them in such
actions. Also, consumers initiate litigation against us, in which they allege that we have violated a federal or state law in the process of collecting on their account. It is not unusual for us to be named in a class action lawsuit relating to
these allegations, with these lawsuits routinely settling for immaterial amounts. We do not believe that these ordinary course matters, individually or in the aggregate, are material to our business or financial condition. However, there can be no
assurance that a class action lawsuit would not, if decided against us, have a material and adverse effect on our financial condition.

We
are not a party to any material legal proceedings. However, we expect to continue to initiate collection lawsuits as a part of the ordinary course of our business (resulting occasionally in countersuits against us) and we may, from time to time,
become a party to various other legal proceedings arising in the ordinary course of business.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

The annual meeting of the shareholders of the Company was held on May 21, 2008. The results of the voting were as follows:

1.
The following individuals were elected as directors for a three-year term:



|                    |  |            |  |               
|------------------- |  | ---------- |  | --------------
|Director            |  | Votes for  |  | Votes Withheld
|Terrence D. Daniels |  | 25,382,122 |  | 1,845,150     
|William F. Pickard  |  | 25,431,877 |  | 1,795,395     

The following is a list of the other directors whose term of office continues beyond the annual
shareholder meeting:

Jennifer Adams

Nathaniel F. Bradley IV

Donald Haider

Anthony R. Ignaczak

William I Jacobs

H. Eugene Lockhart

2. The ratification of
Grant Thornton LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2008:



|           |  |               |  |                
|---------- |  | ------------- |  | ---------------
|Votes for  |  | Votes Against |  | Votes abstained
|27,178,100 |  | 21,491        |  | 27,681         



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                             
|10.1           |  | First Amendment to the Lease Agreement dated as of April 11, 2008, between Asset Acceptance, LLC and Northpoint Atrium Office Building, Ltd. (Incorporated by reference to Exhibit 10.1
included in the Current Report on Form 8-K filed on May 6, 2008)
|               | 
|31.1*          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                 
|               | 
|31.2*          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                 
|               | 
|32.1*          |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                                                                                                                                                                       



|* | Filed herewith
|- | --------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on August 5, 2008.



|                     |  |                                |  |                                                             
|-------------------- |  | ------------------------------ |  | ------------------------------------------------------------
|                     |  | ASSET ACCEPTANCE CAPITAL CORP.
|                     |  |                               
|Date: August 5, 2008 |  | By:                            |  | /s/ Nathaniel F. Bradley IV                                 
|                     |  |                                |  | Nathaniel F. Bradley IV                                     
|                     |  |                                |  | Chairman of the Board, President and Chief Executive
Officer
|                     |  |                                |  | (Principal Executive Officer)                               
|                     |  |                               
|Date: August 5, 2008 |  | By:                            |  | /s/ Mark A. Redman                                          
|                     |  |                                |  | Mark A. Redman                                              
|                     |  |                                |  | Senior Vice President  Finance and Chief
Financial Officer 
|                     |  |                                |  | (Principal Financial and Accounting Officer)                



38